Question

A senator renounces his past support for protectionism: "The U.S. trade deficit must be reduced, but import quotas only annoy our trading partners. If we subsidize U.S. exports instead, we can reduce the deficit by increasing our competitiveness."

Show the effect of an export subsidy on the market for foreign exchange.

The value of dollars in the market for foreign-currency exchange.....falls or rise.... as a result of this export subsidy.

True or False: The export subsidy reduces the trade deficit.

Answer 1

The answer and procedures of the exercise are attached in a the following image.

Explanation

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