### Analyzing the Effects of a Trade Deficit#### Scenario OverviewYou have just been hired by the U.S. government to analyze the following scenario. Suppose the U.S. manufacturing industry is concerned about competition from overseas low-cost producers exporting their goods to the United States, a practice that hurts domestic producers. Lobbyists claim that implementing a tariff on imports would shrink the size of the trade deficit. The following exercise will help you to analyze this claim.#### Graph AnalysisThe following graph shows the demand and supply of U.S. dollars in a model of the foreign-currency exchange market.##### TaskShift the demand curve, the supply curve, or both to show what would happen if the government decided to implement the tariff.##### Graph Description- **Axes**: - The vertical axis represents the exchange rate (units of foreign currency per dollar). - The horizontal axis represents the quantity of U.S. dollars. - **Curves**: - The **Demand Curve** is sloping downwards from left to right, indicating that as the exchange rate decreases (dollars become cheaper), the demand for U.S. dollars increases. - The **Supply Curve** is vertical, indicating that the supply of U.S. dollars in the foreign exchange market is constant at different exchange rates. ##### Adjustable Elements- **Demand**: There is a slider to adjust the position of the demand curve.- **Supply**: There is a slider to adjust the position of the supply curve.By using the sliders, you can analyze how the implementation of a tariff might affect the demand and supply of U.S. dollars in the foreign-currency exchange market. **Effect of Tariffs on Exchange Rates and Economic Indicators**This educational module aims to elucidate the effect of tariffs on various financial and economic indicators, such as the real exchange rate, supply of loanable funds, real interest rate, net capital outflow, and net exports.**Graph Analysis:**The attached graph delineates the relationship between the real exchange rate (measured in units of foreign currency per dollar) and the quantity of dollars. It showcases the classical supply and demand curves:- **Demand Curve:** This downward-sloping line illustrates the demand for dollars in the foreign exchange market.- **Supply Curve:** The vertical line represents the fixed supply of dollars available in the market.When tariffs are imposed on imports, they can influence the exchange rate and hence affect the points where the supply and demand curves intersect.**Fill in the Effects of Tariffs:**Given the above changes due to the imposition of tariffs, please determine the impact on the dollar:- **Given this change, the dollar ______.**Next, fill in the following table reflecting how a tariff impacts each of the following economic components:| Change due to a tariff | Supply of Loanable Funds | Real Interest Rate | Net Capital Outflow | Net Exports ||--------------------------|-------------------------|--------------------|--------------------|-------------|| | | | | |**Instructions:**1. Use your knowledge or research on economic principles to understand how tariffs impact each economic factor listed in the table.2. Fill in the blanks with appropriate terms (such as "increases," "decreases," or "remains the same") to indicate the effect of tariffs on each variable.This exercise will help you comprehend the broader economic repercussions of implementing tariffs in a global trade environment.

The foreign exchange market is an over-the-counter (OTC) marketplace that decides the exchange rate…

4. Analyzing the effects of a trade deficit You have just been hired by the U.S. government to analyze the following scenario. Suppose the U.S. manufacturing industry is concerned about competition from overseas low-cost producers exporting their goods to the United States, a practice that hurts domestic producers. Lobbyists claim that implementing a tariff on imports would shrink the size of the trade deficit. The following exercise will help you to analyze this claim. The following graph shows the demand and supply of U.S. dollars in a model of the foreign-currency exchange market. Shift the demand curve, the supply curve, or both to show what would happen if the government decided to implement the tariff. Supply llar)

4. Analyzing the effects of a trade deficit You have just been hired by the U.S. government to analyze the following scenario. Suppose the U.S. manufacturing industry is concerned about competition from overseas low-cost producers exporting their goods to the United States, a practice that hurts domestic producers. Lobbyists claim that implementing a tariff on imports would shrink the size of the trade deficit. The following exercise will help you to analyze this claim. The following graph shows the demand and supply of U.S. dollars in a model of the foreign-currency exchange market. Shift the demand curve, the supply curve, or both to show what would happen if the government decided to implement the tariff. Supply llar)

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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