A protective Tariff is often used by governments to attempt to control trade between nations to protect and encourage their undeveloped local industries, businesses. Using the Mundell-Fleming model, which of the following prediction is accurate under floating exchange rate regime?
A. Protective trade policy decreases exchange rate and thus increases trade balance.
B. Protective trade policy is not effective in term of affecting real output.
C. Protective trade policy increases exchange rate and thus decreases trade balance.
D. Protective trade policy is very effective in term of affecting real output.