Suppose that the United States imposes an import quota on automobiles.In the open-economy macroeconomic model this quota shifts the
A)U.S.supply of loanable funds left.
B)U.S.demand for loanable funds left.
C)demand for U.S.dollars in the market for foreign-currency exchange right.
D)supply of U.S.dollars in the market for foreign-currency exchange left.

Question

Quizplus · Accepted Answer

The import quota on automobiles reduces the supply of foreign cars in the U.S. market, which increases demand for U.S. cars. As a result, the demand for U.S. dollars in the market for foreign-currency exchange increases because foreign buyers need to purchase U.S. dollars to pay for the U.S. cars. Thus, the quota leads to an increase in the exchange rate of the U.S. dollar, causing the demand for U.S. dollars to shift right. Therefore, option C is correct. Option A and B are incorrect because the loanable funds market is not affected by the import quota on automobiles. Option D is incorrect because the quota does not affect the supply of U.S. dollars in the foreign exchange market.

Suppose That the United States Imposes an Import Quota on Automobiles.In