Some politicians argue for imposing trade restrictions in the hope that doing so will reduce the trade deficit of Canada. Assuming Canada has a floating exchange rate, answer the following questions regarding the impact of the trade restrictions.

1. What is the impact in the foreign exchange market for dollars?

a. The demand for dollars increases.

b. The supply of dollars decreases.

c. The demand for dollars decreases.

d. The supply of dollars increases.

2. What is the impact in the market for the foreign currency (euros, yen, etc.)?

a. The supply of foreign currency increases.

b. The demand for foreign currency decreases.

c. The demand for foreign currency increases.

d. The supply of foreign currency decreases.

3. What happens to the exchange rate value of the dollar?

a. The dollar depreciates.

b. The value of the currency does not change.

c. The dollar appreciates.

4. What happens to net exports?

a. Net exports will increase.

b. Net exports can go either way.

c. Net exports will decrease.

Answer rating: 100% (QA)

Impact on Demand for Dollars Trade restrictions typically involve imposing tariffs or quotas on impo... View the full answer