Suppose the European Union was a small open economy under floating exchange rates. If the EU imposes a quota on Japanese cars in an effort to reduce the trade deficit, then:

Question

Accepted Answer

the exchange rate goes up and the trade deficit remains unchanged.

Answer

both the exchange rate and the trade deficit go down.

Answer

the exchange rate goes up and the trade deficit goes down.

Answer

the exchange rate goes down and the trade deficit remains unchanged.

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Suppose the European Union was a small open economy under floating exchange rate...

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