Impact of Protectionism Measures on Macroeconomic Equilibrium

Running head: BUSINESS ECONOMICS
Business Economics
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1BUSINESS ECONOMICS
Table of Contents
Introduction......................................................................................................................................2
Analysis...........................................................................................................................................2
Conclusion.......................................................................................................................................7
References list..................................................................................................................................8

2BUSINESS ECONOMICS
Introduction
Protectionism measures in trade indicates policies that are designed to prevent any unfair
competition with foreign competitors. Politicians impose different form of protectionists
measures as defensive measures for a nation. Among different form of protectionism measures
most commonly used policy is imposition of tariff. This prevents foreign competition by raising
price of imported goods and increasing demand for domestically produced good. Due to
distortionary effect of tariff, today government of some nations sort to quantity restrictions that
fix imported quantity by a quota (Spykman, 2017). Any form of government intervention affects
economic stability. Recent protectionist measures of Trump’s government not only affect
economy of USA but also affects stable economic state of other nation like Australia.
Analysis
Macroeconomic Stability
The overall stability of an economy is illustrated using both short run and long run
aggregate supply curve and aggregate demand curve. The nature and shape of aggregate supply
curve differs in the short run and long run. Aggregate supply in the short run is upward sloping.
This is because in the short run, higher price induces suppliers to supply more. In the long run
however as the economy attains potential output, it is not possible to increase output any further
(Agenor & Montiel, 2015) This makes the long run aggregate supply curve vertical. Aggregate
demand curve on the other hand slope downward both in short run and in long run.