Price Elasticity, Income Elasticity an ...
Elasticity measures the sensitivity or responsiveness of one variable to another. There are... Read More
Capital restrictions are the measures that governments or central banks take to control the flow of foreign money in and out of a country’s economy. Government controls include tariffs, taxes, volume capital restrictions, etc.
The main objective of capital restrictions is to help maintain a balance of unstable exchange rates resulting from extremely volatile short-term capital flows.
Governments have controls that either last for a short or long period of time. Short-term controls deal with urgent matters (such as a recession), while long-term controls have proved to be a part of a larger development goal for some profitable trading stories.
Question
Which of the following trade controls is likely to cause the biggest economic gain for a country that is importing?
- Tariffs
- Import quotas
- Export subsidies
Solution
The correct answer is A.
Imposing tariffs will lead to an increase in the government’s revenue whereas import quotas and export subsidies do not usually create direct revenue for a government.