1.D Rationale: An increase in the exchange rate makes a country's exports more expensive to overseas buyers, and imports cheaper: it therefore has the opposite of the first three effects. The lower cost of imports, however, is likely to reduce the rate of domestic inflation.
Pitfalls: The permutations of increases/decreases in interest rate can be confusing: ensure that the logic makes sense to you!
Ways in: You could group options B and C together (increased cost = reduce demand): since both cannot be the answer, and there is only one answer, neither of these options can be correct.
This gets you quite a long way towards the solution … So if you don't know an answer, don't panic: logic can often help!
2. B Rationale: Subsidies for exporters will encourage domestic exports, but will not help to protect domestic producers against overseas producers. The other options are tariff (taxes and duties on goods entering the country) and non-tariff barriers to trade.
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