Question

Suppose Foreign (Upper F )imposes a tariff on imports from Home (Upper H ). All else​ equal, this action will cause the​ long-run real​ Home/Foreign exchange rate to​ ______ and the​ long-run nominal​ Home/Foreign exchange rate to​ ______.
A. decrease; decrease
B. increase; increase
C. decrease; increase
D. increase; decrease

Answer 1

Answer:

D. increase; decrease

Explanation:

When foreign imposes a tariff on import from home then there will be decreaing the import leading to a decreased demand of domestic currency by foreigners.

Therefore, domestic currency will depreciate and foreign currency will appreciate thus this action will lead to real home/Foreign rate to increase and will decrease the nominal home/foreign exchange rate.