Suppose That the Small Open Economy (SOE)cannot Produce Investment Goods

question 21

Multiple Choice

Suppose that the small open economy (SOE) cannot produce investment goods, but domestic producers can produce consumption goods. If a tariff t is imposed by the SOE on imports of goods
From the rest of the world, and the rest of the world imposes a tariff t on exports from the SOE to
The rest of the world, then

• A)exports decrease.
• B)net exports increase.
• C)imports increase.
• D)imports decline.
• E)exports increase.

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Definitions:

Potential Output

The maximum level of economic productivity that can be maintained in the long run without causing inflation to rise.

Governmental Intervention

Actions taken by a government to affect the economy, which can include regulations, subsidies, and taxes.

Discretionary Policy

Economic policies based on judgment decisions by policymakers, as opposed to rules-based policies, to manage the economy.

Policy Tools

Policy tools are mechanisms used by government or monetary authorities to influence the economy, such as interest rates, taxation, and government spending.