RQ_Solution_Ch_17.docx

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Department
Economics
Course
ECO365H1
Professor
Iris Wu
Semester
Summer

Description
ECMC61Chapter 17 Review Questions Answer KeyQuestion 1 Problem 2Suppose the government imposes a tariff on all importsA tariff is a tax on the consumption of importsan imposition of tariff will increase the demand for domestic goods because the prices of imports increaseThis leads to higher aggregate demand If the imposition of tariff is temporary1Tariff AD DD shifts to the right to DDADeSince the tariff is temporary there is no change in expectation ie E remains unchangedPoint B is the shortrun equilibrium1Yto Y 1EE DC appreciatesOverall CAthe initialin CA due to the import tariff is only partially offset by thein CA due to real appreciation of DCIf the imposition of tariff is permanent1Tariff AD DD shifts to the right to DDADeSince the tax relief is permanent agents expects DC to appreciates ie E decreases from e0e1E to Ee1An expected appreciation of DC shifts AA schedule shifts downward to AAEPoint C is the shortrun equilibriumYY no change FE2EE DC appreciatesOverall CA does not change the initialin CA due to the import tariff is fully offset by thein CA due to real appreciation of DC01EDDADDDADA0 E1 EB2 ECe1e0AAEAAE Y1 YYFE1
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