Which of the following statements about trade policy is true ?
Correct answer: A. A country's trade policy has no impact on the size of its trade balance
- A. A country's trade policy has no impact on the size of its trade balance
- B. None of these answers
- C. A restrictive import quota decreases a country's net exports
- D. A restrictive imports quota increases a country's net exports
Explanation
In the standard open-economy model, the trade balance equals national saving minus domestic investment, so trade policy does not permanently determine its size. A quota may change the exchange rate, but the resulting currency adjustment offsets its direct effect on net exports.
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