24. In a small open economy, if the government adopts a policy that lowers imports, then that policy: A) raises the real exchang

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24. In a small open economy, if the government adopts a policy that lowers imports, then that policy: A) raises the real exchang

e rate and increases net exports. B) raises the real exchange rate and does not change net exports. C) raises the real exchange rate and decreases net exports. D) lowers the real exchange rate.

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1 answer:

Tom [10] · Answer 1 · 2020-09-24T20:49:49+03:00

Answer: A

Explanation: The balance of trade, commercial balance, or net exports, is the difference between the monetary value of a nation's exports and imports over a certain time period. Sometimes a distinction is made between a balance of trade for goods versus one for services . Net exports are the value of a country's total exports minus the value of its total imports. It is a measure used to aggregate a country's expenditures or gross domestic product in an open economy. The reduction in imports will increase the net exports of the country which under answer A. The exchange rate has an effect on the trade surplus (or deficit), which in turn affects the exchange rate, and so on. In general, however, a weaker domestic currency stimulates exports and makes imports more expensive.The balance of trade influences currency exchange rates through its effect on the supply and demand for foreign exchange. When a country's trade account does not net to zero that is, when exports are not equal to imports there is relatively more supply or demand for a country's currency, which influences the price of that currency on the world market