In 2002, the United States placed higher tariffs on imports of steel. According to the open-economy macroeconomic model this policy reduced imports
A)into the United States and made U.S.net exports rise.
B)into the United States and made the net supply of dollars in the foreign exchange market shift right.
C)of steel into the United States, but reduced U.S.exports of other goods by an equal amount.
D)of steel into the United States and increased U.S.exports of other goods by an equal amount.

Question

Quizplus · Accepted Answer

The open-economy macroeconomic model suggests that when a country imposes tariffs on imports (like steel in this case), it reduces those imports but also leads to a reduction in exports of other goods by an equal amount. This is due to the balance of payments; a decrease in imports must be matched by a decrease in exports, as the exchange rate adjusts to keep the trade balance in equilibrium.

In 2002, the United States Placed Higher Tariffs on Imports