Trade restrictions will stop foreign imports, which will increase American employment and protect American jobs. Most economists realize this argument is wrong. Can you explain why?
Trade restrictions will stop foreign imports, but this means that foreigners will no longer have the dollars that those imports used to generate. With fewer dollars, foreigners will buy fewer American goods (since this is virtually the only thing that dollars are good for). We expand production in areas in which we have a comparative disadvantage. At that same time, production and employment in the exports for which we do have a comparative advantage will suffer. Trade restrictions only protect jobs in industries that compete with imports; they destroy jobs in export industries.
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In the above figure, suppose the economy is at a short-run equilibrium at point B and the interest rate is r2. Which of the following policy options for the Fed will help solve the short-run situation?
A) open market sale of government securities B) lowering the required reserve ratio C) lowering the differential between the discount rate and the federal funds rate D) open market purchase of government securities
If velocity does not change and the quantity of money grows at the same rate as does real GDP, then in the long run
A) the real interest rate is less than the nominal interest rate. B) the inflation rate equals zero. C) the nominal interest rate equals zero. D) the inflation rate equals the growth rate of the quantity of money. E) the nominal interest rate is less than the real interest rate.