Question 1

What are tariffs?

Accepted Answer

Taxes imposed on the import or export of goods

Question 2

What is the difference between revenue and protective tariffs?

Accepted Answer

Revenue tariffs: taxes on goods not produced domestically

Protective tariffs: taxes on goods produces domestically

Question 3

What are import quotas?

Accepted Answer

Maximum limits on the number of goods that can be imported

(similar effects to tariffs, but the government does not make income)

Question 4

How does expansionary fiscal policy affect exchange rates?

Accepted Answer

It will depreciate the country's currency

(expansionary fiscal policy -> increased PL -> lower net exports -> depreciate currency)

Question 5

How does monetary policy affect exchange rates?

Accepted Answer

Altering a country's interest rates will increase/decrease investment spending, which impacts the demand for its currency

(contractionary -> higher IR -> higher demand for currency)

Question 6

How will tariffs on Chinese goods affect demand for the Chinese Yuan?

Accepted Answer

Demand for the Yuan will decrease because Chinese goods will be more expensive, so China will export less

6.4 Effect of Changes in Policies and Economic Conditions on the FOREX Market, AP Macroeconomics Flashcards