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Consider two open IS LM economies. a. Consider a tax, at rate t on imports of foreign goods (such a tax on foreign goods is
Consider two open IS LM economies. a. Consider a tax, at rate t on imports of foreign goods (such a tax on foreign goods is called a tari). How does this aect the import relation? The export relation? b. What are the consequences of the introduction of a tax on foreign goods in the domestic country on equilibrium output and net exports? c. What are the consequences of the same tax on foreign equilibrium output and net exports? d. Suppose that, in response to the domestic tari, the foreign country responds by introducing a similar tax on its imports. What are the additional eects of this foreign retaliation on equilibrium output and the volume of trade? (Assume identical economies and a foreign tax equal to the domestic one
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