At a family gathering, one of your cousins says, We spend so much more on imports than
Question:
At a family gathering, one of your cousins says, “We spend so much more on imports than other countries spend on our exports. It isn’t fair and we should raise tariffs on imports to reduce how much we buy from other countries.” How would you explain to your cousin that current account deficits aren’t necessarily a sign of economic troubles to come? Think of the best way to describe this intuitively to someone who may not have taken an economics course before. What effect would their policy suggestion—raising tariffs on imports—have on the current account and the financial account? What would happen if our trading partners retaliated by then raising tariffs on goods exported from the United States?
Step by Step Answer:
Principles Of Economics
ISBN: 9781319330156,9781319419769
2nd Edition
Authors: Betsey Stevenson, Justin Wolfers