Trade deficit and protectionism
1. What are the arguments in favor of trade restrictions,
and what are the counterarguments? According to most economists, do any of
these arguments really justify trade restrictions? Explain.
2. State what, if anything, each of the following does to
the supply or demand of loanable funds.
a. net capital outflow increases at each interest rate
b. domestic investment increases at each interest rate
c. the government deficit increases
d. private saving increases
3. What effect do protectionist policies have on the trade
deficit?
4. Explain why policy lags could make stabilization policies
counterproductive.
5. Describe three costs of inflation.
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