You have just been hired by the U.S. government to analyze the following scenario. Suppose the U.S. agricultural industry is concerned about the level of fruit and vegetable imports to the United States, a practice that hurts domestic producers. Lobbyists claim that implementing a quota on imports would shrink the size of the deficit. The following exercise will help you to analyze this claim.

The following graph shows the demand and supply of U.S. dollars in a model of the foreign-currency exchange market.

Shift the demand curve, the supply curve, or both to show what would happen if the government decided to implement the quota.

Given this change, the value of a dollar

Now that we've examined the effect of a quota on the foreign-currency exchange market, let's take a look at what happens in the loanable funds market and with some other equilibrium concepts. Fill in the following table with the effect of a quota on the following items:

Change due to a quota Supply of Loanable Funds Real Interest Rate Domestic Investment Net Exports