If a country places tariffs on imported goods, then its

Question

a. currency appreciates which increases exports improving the trade balance.
b. currency appreciates which reduces exports leaving the trade balance unchanged.
c. currency depreciates which reduces exports leaving the trade balance unchanged.
d. currency depreciates which increases exports improving the trade balance.

Answer 1

When a country places tariffs on imported goods, it becomes more expensive for consumers to buy those imported goods. This can lead to a decrease in imports, which can positively affect the trade balance. Additionally, the reduced competition from imports can benefit domestic producers, potentially increasing exports.

As imports decrease and exports may increase, the currency could depreciate in the short term because reduced imports might lessen demand for the country's currency. However, if exports increase significantly, it could ultimately put upward pressure on the currency.

So, the most fitting answer among the options provided is:

d. currency depreciates which increases exports improving the trade balance.