General equilibrium considerations lead to the realization that import-substituting policies have the effect of
A) discouraging exports.
B) encouraging exports.
C) encouraging an efficient use of a country's resources.
D) generating large tariff revenues for the government.
E) creating competitive manufacturing sectors.

Question

Quizplus · Accepted Answer

In general equilibrium analysis, import-substituting policies reduce a country's import demand by substituting domestic production for imports. This reduces the country's export capacity as production is diverted to meet domestic demand. As a result, exports are discouraged.

General Equilibrium Considerations Lead to the Realization That Import-Substituting Policies