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How does protectionism affect gross domestic production (GDP)?

Question:

How does protectionism affect gross domestic production (GDP)?

Gross Domestic Product:

Gross domestic product (GDP) is the market value of final goods and services produced within a country in a given time period. It is equal to the sum of consumer expenditures, government spending, gross business investment, and net exports (which equals exports minus imports).

Answer and Explanation:

Protectionism is the practice of protecting domestic producers by implementing tariffs and quotas on foreign importers. In theory, protectionism should increase GDP, at least in the short run. This is because the tariffs will reduce imports (which increases GDP) and also increase consumer expenditures because consumers will have more money to spend on domestic products. In the long run, however, countries may retaliate by doing their own tariffs and quotas, causing exports to decline, which will cause GDP to fall.


Learn more about this topic:

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Gross Domestic Product: Definition and Components

from Economics 102: Macroeconomics

Chapter 4 / Lesson 3
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