Figure 13-2
-Refer to the Figure13-2.If the economy were initially in equilibrium at r0 and E0 and the government removed import quotas,what would happen to the exchange rate?
A) It would appreciate to E1.
B) It would appreciate to E2.
C) It would depreciate to E1.
D) It would depreciate to E2.

Question

Figure 13-2 
-Refer to the Figure13-2.If the economy were initially in equilibrium at r0 and E0 and the government removed import quotas,what would happen to the exchange rate?
A) It would appreciate to E1. 
B) It would appreciate to E2. 
C) It would depreciate to E1. 
D) It would depreciate to E2.

Quizplus · Accepted Answer

Removing import quotas would increase the supply of domestic currency in the foreign exchange market as imports rise, leading to a depreciation of the currency, moving the exchange rate to E2.

Figure 13-2 -Refer to the Figure13-2.If the Economy Were Initially in Equilibrium