Suppose that the U.S.imposes an import quota on automobiles.The quota makes the real exchange rate of U.S.dollars
A)appreciate but does not change the real interest rate in the United States.
B)appreciate and the real interest rate in the United States increase.
C)depreciate and the real interest rate in the United States decrease.
D)depreciate but does not change the real interest rate in the United States.

Question

Quizplus · Accepted Answer

An import quota reduces the supply of foreign cars, increasing demand for domestic currency, leading to appreciation of the real exchange rate, but it does not directly affect the real interest rate.

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