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Question
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Posted 10 months ago
Which of the following happens if the U.S. imposes tariffs on Chinese goods?
Choose 1 answer:
(A) The supply of the U.S. dollar increases.
(B) The Chinese yuan appreciates
(c) Both currencies depreciate.
(D) The demand for the dollar increases.
(E) The U.S. dollar appreciates.
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Answer from Sia
Posted 10 months ago
Solution by Steps
step 1
Consider the economic implications of tariffs: Tariffs on Chinese goods would make them more expensive in the U.S. market
step 2
Analyze the impact on currency demand: As Chinese goods become more expensive, U.S. consumers are likely to buy fewer Chinese goods, leading to a decrease in demand for the Chinese yuan
step 3
Assess the impact on currency supply: At the same time, Chinese producers would receive fewer U.S. dollars for their goods, potentially decreasing the supply of U.S. dollars in the foreign exchange market
step 4
Determine the effect on currency value: A decrease in demand for the yuan and a decrease in the supply of the U.S. dollar would likely lead to the appreciation of the U.S. dollar relative to the yuan
Answer
E
Key Concept
Currency Appreciation due to Tariffs
Explanation
When a country imposes tariffs, it can lead to the appreciation of its currency due to decreased demand for the foreign currency and decreased supply of its own currency in the foreign exchange market.
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