Question
What is the key feature of a free trade area?
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Answer
Internal free trade, but separate external tariffs.
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Question
Why are import quotas economically similar to tariffs but different in fiscal effect?
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Answer
Both raise domestic prices, but quotas usually generate no government revenue.
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Question
Under covered interest parity, why is the high-interest-rate currency at a forward discount?
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Answer
Otherwise investors could earn riskless arbitrage profits.
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Question
What is the key economic effect of a domestic subsidy compared with a tariff?
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Answer
It helps domestic producers without directly raising import prices.
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