Assume the United States has a trade surplus with Brazil and imposes new tariffs on Brazilian coffee, a major export to the United States.

(a)Describe the effect of the tariff on the equilibrium price and quantity of coffee in the United States.

(b)What affect will the tariff have on the current account balance in the United States? Explain.

(c)Brazil responds by imposing their own tariff on U.S.-made agricultural machinery.

1.The Brazilian purchase of U.S. agricultural machinery is a debit to which subaccount of the Brazilian balance of payments?

2.What will happen to the quantity of agricultural machinery produced by Brazilian manufacturers?