Part 1-Federal Reserve & Open Market Operations

If the Fed shifts to a more restrictive monetary policy, and it utilizes the open market operations tool, describe what will happen to each of the following:

1.the reserves available to banks

2.real interest rates

3.household spending on consumer durables

4.the exchange rate value of the dollar

5.net exports

6.the prices of stocks

7.real GDP

Part 2-Effects of Free Trade and Restrictions

Use the graph below to answer the following questions:

The graph above shows the demand and supply of wrenches for the country of Spain.

1.If trade is avoided, Spain consumes _____ wrenches at a price of _____ per wrench.

2.With free trade, for a world price of $4 per wrench, Spain is producing _____wrenches.

3.With free trade, for a world price of $4 per wrench, Spain is consuming _______ wrenches.

4.With free trade, for a world price of $4 per wrench, Spain is importing _________wrenches.

5.If the world price is $4 per wrench, and the government of Spain imposes a tariff of $2, Spain produces ____________ and imports __________wrenches.

6.If the world price is $4 per wrench, and the government of Spain imposes a tariff of $2, how much tariff revenue will the Spain’s government collect? _____