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Principles of Economics (MindTap C...

8th Edition
N. Gregory Mankiw
Publisher: Cengage Learning
ISBN: 9781305585126

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BuyFindarrow_forward

Principles of Economics (MindTap C...

8th Edition
N. Gregory Mankiw
Publisher: Cengage Learning
ISBN: 9781305585126
Chapter 32, Problem 3QR
Textbook Problem
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Suppose that a textile workers’ union encourages people to buy only American-made clothes. What would this policy do to the trade balance and the real exchange rate? What is the impact on the textile industry? What is the impact on the auto industry?

To determine
The impact of native goods promotion.

Explanation of Solution

When the textile industry encourages the customers to only consume the US-made textiles, it will lead to the increase in the demand for the US-made textiles and reduces the demand for the imported textiles of other countries. As a result, the imports of textiles in the economy will fall. As a result of the fall in the imports of the economy, the net exports of the economy will increase. When the net exports increase, it will lead to the higher demand for the US dollar in the currency exchange market. This can be shown on the diagram as follows:

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