Answer to Question #108949 in Macroeconomics for amanda

Question

Suppose Canada imposes high tariffs on Japanese automobiles. The intention is to make autos produced in Japan so expensive for Canadians to buy that they choose instead to purchase autos constructed in Canada. Advocates of the policy contend this will create new employment in Canada. Assuming the Bank of Canada maintains a flexible exchange rate, will this trade policy prove effective? Explain thoroughly. What if the Bank of Canada maintains a fixed exchange rate, how would be your answer? Explain thoroughly.

Answer 1

Canada imposes high tariff on Japanese automobiles. The imported goods will become so expensive than domestic goods thus local companies will tend to produce more goods because of price increase. There will more demand for local goods hence companies will create more jobs for the local people. This policy of imposing tariffs will be effective if the Japanese government will not retaliate.