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Unformatted text preview: Figure 30-6 T HE E FFECTS OF AN I MPORT Q UOTA . When the U.S. government imposes a quota on the import of Japanese cars, nothing happens in the market for loanable funds in panel (a) or to net foreign investment in panel (b). The only effect is a rise in net exports (exports minus imports) for any given real exchange rate. As a result, the demand for dollars in the market for foreign-currency exchange rises, as shown by the shift from D 1 to D 2 in panel (c). This increase in the demand for dollars causes the value of the dollar to appreciate from E 1 to E 2 . This appreciation of the dollar tends to reduce net exports, offsetting the direct effect of the import quota on the trade balance....
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- Spring '10