1. Indicate whether each of the following represents a credit or debit on the U.S. current account.

a. An American imports a BMW from Germany.

b. A Japanese company purchases software from an American company.

c. The U.S. gives $100 million in financial aid to Israel.

d. A U.S. company in Florida sells oranges to Great Britain.

2. Indicate whether each of the following represents a credit or debit on the U.S. financial account.

a. A French bank purchases $100,000 worth of U.S. Treasury notes.

b. The central bank in the U.S. purchases 1 million euros in the currency market.

c. A U.S. resident buys stock on the Japanese stock market.

d. A Japanese company purchases a movie studio in California.

3. How are each of the following events likely to affect the U.S. trade balance?

a. The European price level increases relative to the U.S. price level.

b. The dollar appreciates in value relative to the currencies of its trading partners.

c. The U.S. government offers subsidies to firms that export goods.

d. The U.S. government imposes tariffs on imported goods.

e. Europe experiences a severe recession.

4. What happens to the supply curve for dollars in the currency market if Americans wish to buy more Japanese consumer electronics?

5. Evaluate the following statement: "The balance of payments equals -$200 million and the statistical discrepancy equals zero."

6. Assume that a product sells for $100 in the U.S.

a. If the exchange rate between British pounds and U.S. dollars is $2 per pound, what would the price of the product be in the United Kingdom?

b. If the exchange rate between Mexican pesos and U.S. dollars is 125 pesos per dollar, what would the price of the product be in Mexico?

c. In which direction would the price of a $100 U.S. product change in a foreign country if Americans' tastes for foreign products increased?

7. How would each of the following affect the supply of euros, the demand for euros, and the dollar price of euros?

Change	Supply of Euros	Demand for Euros	Dollar price of Euros
Reduced U.S. tastes for European goods
Increased European tastes for U.S. goods

8. How are each of the following classified, as debits or credits, in the U.S. balance-of-payments accounts?

		Credit	Debit
a.	Americans buy autos from Japan.
b.	American tourists travel to Japan.
c.	Japanese consumers buy rice grown in the U.S.
d.	The U.S. gives foreign aid to Rwanda.
e.	General Motors, a U.S. company, earns profits in France.
f.	Royal Dutch Shell earns profits from its U.S. operations.
g.	General Motors builds a new plant in Vietnam.
h.	Japanese investors purchase U.S. government bonds.

9. What will happen to the supply of dollars, the demand for dollars, and the equilibrium exchange rate of the dollar in each of the following cases?

		Supply of dollars	Demand for dollars	Equilibrium exchange rates
a.	Americans buy more European goods.
b.	Europeans invest in U.S. stock market.
c.	European tourists flock to the U.S.
d.	Europeans buy U.S. government bonds.
e.	American tourists flock to Europe.

10. What would be the labor force participation rate if: a. The total adult population = 200 million, the labor force = 160 million, and employment = 140 million? b. The total adult population = 200 million, the labor force = 140 million, and employment = 120 million? c. Starting from the situation in (a), what would happen to the labor force participation rate if 30 million people lost their jobs and all of them exited the labor force? d. Starting from the situation in (a), what would happen to the labor force participation rate if employment rose from 140 million to 150 million? 11. Answer the following questions about unemployment. a. If a country has a noninstitutional population of 200 million and a labor force of 160 million, and 140 million people were employed, what is its labor force participation rate and its unemployment rate? b. If 10 million new jobs were created in the country, and it attracted 20 million of the people previously not in the labor force into the labor force, what would the new labor force participation rate and new unemployment rate be? c. Beginning with the situation in part (a), if 10 million unemployed people became discouraged and stopped looking for work, what would the new labor force participation rate and new unemployment rate be? d. Beginning with the situation in part (a), if 10 million current workers retired but their jobs were filled by others still in the labor force, what would the new labor force participation rate and new unemployment rate be? 12. Which of the following individuals would economists consider unemployed? a. Sam looked for work for several weeks but has now given up his search and is going back to college. b. A 14-year-old wants to mow lawns for extra cash but is unable to find neighbors willing to hire her. c. A factory worker is temporarily laid off but expects to be called back to work soon. d. A receptionist, who works only 20 hours per week, would like to work 40 hours per week. e. A high school graduate is spending the summer backpacking across the country rather than seeking work. 13. Identify whether each of the following reflects seasonal, structural, frictional, or cyclical unemployment. a. A sales employee is laid off due to slow business after consumer spending falls. b. An automotive worker is replaced by robotic equipment on the assembly line. c. A salesperson quits a job in California and seeks a new sales position in New York. d. An employee is fired due to poor job performance and searches the want ads each day for work. 14. Which type of unemployment would be affected with the following changes? Would it go up or down? a. Employment benefits are increased. b. Minnesota has heavy snowfall. c. Online job searches become more effective. d. Coal has a large, permanent decrease in demand. e. More people have been retrained to develop new skills. f. Demand for goods and services in the economy falls sharply. 15. Answer the following questions about reasons for unemployment. a. In a severe recession, what would tend to happen to the number of people in each of the following categories? Job losers Job leavers Reentrants New entrants b. In good economic times, why might the number of job leavers, reentrants, and new entrants all increase?

16. a. What is the relationship between the natural rate of unemployment and frictional, structural, and cyclical unemployment? b. What would happen to both unemployment and the normal rate of unemployment if: i. cyclical unemployment increases ii. frictional unemployment increases iii. structural unemployment falls and cyclical unemployment rises by the same amount iv. structural unemployment increases and cyclical unemployment decreases by a larger amount v. frictional unemployment decreases and structural unemployment increases by the same amount 17. Unemployment benefits in many European countries tend to be both more generous and available for longer periods than those in the U.S. What impact do you think this is likely to have on the unemployment rate in a European country? Why? 18. How can unions result in higher unemployment rates? How would the results differ for someone who wants to be employed in the union sector as compared with someone who currently has a job in the union sector? 19. Why isn't the belief that technological advances inevitably displace workers true? 20. Answer the following questions about inflation. a. What would be the effect of unexpected inflation on each of the following? Retirees on fixed incomes Workers Borrowers Lenders Shoe-leather costs Menu costs b. How would your answers change if the inflation was expected?