Suppose that Canada imposes an import quota on automobiles. In the open-economy macroeconomic model, this quota would shift which of the following curves?
A)supply of loanable funds left
B)demand for loanable funds left
C)demand for Canadian dollars right
D)supply of Canadian dollars left

Question

Quizplus · Accepted Answer

An import quota on automobiles would reduce the supply of foreign cars in Canada, which would increase the demand for Canadian cars. As a result, consumers in other countries would need to buy more Canadian cars, increasing the demand for Canadian dollars and shifting the demand for Canadian dollars to the right. Therefore, the correct answer is C. The supply of loanable funds is determined by domestic savings and investment, while the demand for loanable funds is determined by private investment and government borrowing. The supply and demand for Canadian dollars are affected by factors such as trade, capital flows, and exchange rates, which are more directly relevant to the imposition of an import quota on automobiles.

Suppose That Canada Imposes an Import Quota on Automobiles