Question

If tariffs are used in an attempt to improve country A’s balance of trade, and if exchange rates are flexible, the imposition of the tariffs will cause __________ in the value of A’s currency relative to other currencies and, as a consequence, A’s exports will __________.

Answer 1

Answer: increase; decrease.

Step-by-step explanation:

A tariff is a tax that is imposed on imports i.e goods brought into a country from other countries. Tariffs are used to prevent dumping, enhance a country's balance of payment and also protect infant industries.

When there is flexibility on exchange rate i.e when exchange rate changes and a country wants to use tariff to improve its balance of trade, the imposition of the tariffs will lead to an increase in the value of the home country in relation to other countries and as a result, export will decrease as selling the goods in the home country is worth more.