In September 2008, the Chinese government increased the sales tax on cars with large engines whilst it reduced the sales tax on cars with small engines. Most cars in China with large engines are imported whilst most cars with small engines are home produced. Which effects would the changes in sales tax be expected to have on China’s trade surplus and the demand for home produced cars?
trade surplus: increase / demand for home produced cars: increase
2 )
trade surplus: increase / demand for home produced cars: reduce
3 )
trade surplus: reduce / demand for home produced cars: increase
4 )
trade surplus: reduce / demand for home produced cars: reduce
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