In a Small Open Economy with a Floating Exchange Rate

Multiple Choice

In a small open economy with a floating exchange rate, if the government imposes a tariff on foreign goods, then in the new short-run equilibrium:

A) imports will decrease while exports remain constant, leading to a rise in net exports.
B) imports will decrease and exports will increase, leading to a rise in net exports.
C) imports will decrease and exports will decrease by an equal amount.
D) both imports and exports will remain unchanged.