1 Answer | Add Yours
There are a number of reasons why the use of fiscal policy and monetary policy would be a better approach in this case.
First, if trade barriers are erected, the flow of foreign goods into the country will slow or stop. We can assume that the foreign goods have been entering the country because they are less expensive and are of a similar quality to domestic goods. This means that the erection of trade barriers will cause prices to rise on imported goods. If the price of imports rises, people will be hurt. They will no longer be able to buy as many goods and their standard of living will drop. This will be a particularly bad thing to do at a time when unemployment is rising and people have less money to spend.
Second, if trade barriers are erected, the economy could actually lose more jobs. It is very likely that other countries will retaliate by putting up trade barriers of their own. If this happens, people in industries that export will lose their jobs. This will cause unemployment to rise rather than making it go down.
For these reasons and others, it is better to use fiscal and monetary policy than to raise tariffs if a country is experiencing unemployment.
We’ve answered 318,960 questions. We can answer yours, too.Ask a question