A senator renounces his past support for protectionism: "The U. S. trade deficit must be reduced, but import quotas only annoy our trading partners. If we subsidize U. S. exports instead, we can reduce the deficit by increasing our competitiveness." Show the effect of an export subsidy on the market for foreign exchange. Demand Supply Real Exchange Rate Quantity of Dollars Demand Supply The value of dollars in the market for foreign-currency exchangerises as a result of this export subsidy. True or False: The export subsidy increases the trade deficit. True False