1. Suppose over the last 10 years real wages have fallen by 10 percent. If nominal wages have fallen by 5 percent, what was the average annual inflation rate during this period?

2. Imagine a friend tells you that it's important for people to save more, otherwise banks won't have money to lend to new businesses. Is this correct? In a few sentences, explain why or why not. Be sure to use your own words, and try to explain it in a way someone who has not taken an economics course would understand.