Assignment:
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? _____
Assignment 2
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