If a country places tariffs on imported goods, then its
A)currency appreciates which reduces exports leaving the trade balance unchanged.
B)currency appreciates which increases exports improving the trade balance.
C)currency depreciates which reduces exports leaving the trade balance unchanged.
D)currency depreciates which increases exports improving the trade balance.

Question

Quizplus · Accepted Answer

Tariffs on imported goods generally lead to a stronger domestic currency because they reduce the demand for foreign currencies needed to purchase those imports. A stronger domestic currency makes exports more expensive for foreign buyers, potentially reducing exports. However, the reduction in imports due to tariffs can offset the decrease in exports, leaving the trade balance unchanged.

If a Country Places Tariffs on Imported Goods, Then Its