Trade Wars. During the 1930s, many countries in the world—including the United States—tried to help their own economies by restricting imported goods. But because one country’s imports are another...

Trade Wars. During the 1930s, many countries in the world—including the United States—tried to help their own economies by restricting imported goods. But because one country’s imports are another country’s exports, such actions cause international repercussions. Let’s look at the worldwide consequences of such policies using the income-expenditure model.

a. Suppose the United States adopted policies to reduce imports from Europe. This means European exports to the United States would be reduced. What would happen to European equilibrium income?

b. Suppose, in response to U.S. policies, Europe decides to restrict imports from the United States. What then happens to U.S equilibrium income?

c. What do you think happened to the volume of world trade during the 1930s?