Use the following to answer questions : Exhibit: Shifting IS* and LM* -(Exhibit: Shifting IS* and LM*) A small open economy with a floating exchange rate is initially in equilibrium at A with $I S _ { 1 } ^ { * }$ $L M _ { 1 } ^ { * } .$ Holding all else constant, if the government imposes a tariff on imports in order to protect domestic jobs, then the _____ curve will shift to _____. A) LM₁*; $L M _ { 2 } ^ { * }$ B) LM₁*; $L M _ { 3 } ^ { * }$ C) IS₁*; $I S _ { 2 } ^ { * * }$ D) IS₁*; $I S _ { 3 } ^ { * }$

Question

Quizplus · Accepted Answer

Imposing a tariff on imports reduces the demand for foreign currency to pay for those imports, which appreciates the domestic currency, making exports more expensive and imports cheaper, despite the tariff. This reduces net exports, shifting the IS* curve to the left to $I S _ { 2 } ^ { * * }$.

Use the Following to Answer Questions : Exhibit: Shifting IS IS1∗I S _ { 1 } ^ { * }IS1∗​

Use the Following to Answer Questions :
Exhibit: Shifting IS $I S _ { 1 } ^ { * }$