Consider this diagram of the market for foreign currency exchange.If the US government decides to increase import tariffs on imported steel, we could expect the A)demand for dollars to shift from D₁ to D₂. B)demand for dollars to shift from D₂to D₁. C)supply of dollars to increase. D)supply of dollars to decrease.

Question

Quizplus · Accepted Answer

If the US government decides to increase import tariffs on imported steel, it would make imported steel more expensive, resulting in a decrease in imports. As a result, US firms may turn to domestic steel, leading to an increase in demand for the US dollar, as they will need to purchase US dollars to pay for the domestically produced steel. This would shift the demand curve for dollars to the right, from D₁ to D₂. Therefore, option A is the correct answer.

Consider This Diagram of the Market for Foreign Currency Exchange