Relationship among savings, investment, and net capital outflow.

1. Explain the relationship among savings, investment, and net
capital outflow.

2. Inflation distorts relative prices. What does this mean and how
does it affect consumer spending and disposable income? Give
some examples of how inflation has affected your buying power.

3. What are the costs of inflation? Which of three costs do you think are
most important for the US. economy?

4. Describe the economic logic behind the theory of purchasing-
power parity (”PPP”). What factors might prevent PPP from
holding true?

5. What is the importance of trade agreements, and how is
international trade related to the standard of living of the United
States (as opposed to that of a small industrial nation or to a
develOng nation)? What significance do trade agreements have
to your company or a company with which you are familiar?

6. Go to the website of the Bureau of Labor Statistics at
W What is the current US. unemployment rate?
Find the unemployment rate for the demographic group that best
fits a description of you (for example, based on age, gender, race,
and your geographic location). Is it higher or lower than the
national average? Why do you think this is so?

7. What are the three categories into which the Bureau of Labor
Statistics divides everyone? How does the BLS compute the labor
force, the unemployment rate, and the labor force participation
rate?

8. Why is frictional unemployment inevitable? How might the
government reduce the amount of frictional unemployment?

9. What claims do advocates of unions make to argue that unions are
good for the economy?

10. What benefit do people get from the market for insurance? What
two problems impede the insurance market from working
perfectly?

11. Describe the efficient markets hypothesis and give a piece of
evidence consistent with this hypothesis. What does this say about
using past price histories to predict future prices?

10. What factors prevent the Fed from controlling the money supply
perfectly? Explain how the Federal Reserve would set policy it it
needed to contract the money supply? Be sure to include all three
Fed tools in your response.

11. Explain the difference between nominal and real variables and
give two examples of each. According to the principle of monetary
neutrality, which variables are affected by changes in the quantity
of money?