Question

You have just been hired by the U.S. government to analyze the following scenario. Suppose the U.S. manufacturing industry is concerned about competition from overseas low-cost producers exporting their goods to the United States, a practice that hurts domestic producers. Lobbyists claim that implementing a tariff on imports would shrink the size of the trade deficit. The following exercise will help you to analyze this claim.

The following graph shows the demand and supply of U.S. dollars in a model of the foreign-currency exchange market.

Shift the demand curve, the supply curve, or both to show what would happen if the government decided to implement the tariff. 

 Given this change, the dollar _______ .

 Fill in the following table with the effect of a tariff on the following items:

Answer 1

Answer 2