Question

One reads the following in a newspaper: "Today the president and Congress agreed to impose new restrictive quotas on Japanese cars coming into the country." As a result, an economist would predict that the____________.

Answer 1

Answer:

This is likely to improve Balance of Payment (in direction of surplus)

Explanation:

Balance of Payment is a systematic account of economic transactions of a country, with rest of world.

Any item leading to inflow foreign exchange is recorded as credit transaction, & item leading to outflow of foreign exchange is recorded as debit transaction. Eg : Exports are recorded as credit transactions, Imports are recorded as debit transactions.

BOP is Balanced if : Debit (outflow) transactions = Credit (inflow) transactions ; Deficit if : Debit (outflow) transactions > Credit (inflow) transactions ; Surplus if : Debit (outflow) transactions < credit  (inflow) transactions

Quota is non tariff quantitative trade restriction, imposed to discourage imports. Imposition of restrictive quotas on japanese cars reduces their imports. Other things constant, this increases net exports (exports - imports) & hence improves Balance of Payment (in direction of surplus)