If the government imposes or increases tariffs or quotas on imports, then:

Question

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If the government imposes or increases tariffs or quotas on imports, it will make imported goods more expensive, which will reduce the demand for them. This will lead to a fall in real GDP as there will be a decrease in the availability of goods and services. Additionally, as imports decrease, the real current account balance will rise because the value of exports relative to imports will increase. Finally, net domestic investment will fall because tariffs and quotas make it more expensive for domestic firms to import the inputs they need to produce goods and services, which affects their profitability and ability to invest.

If the Government Imposes or Increases Tariffs or Quotas on Imports