Answer the following questions completely showing your OWN work.

Problem 1: The Bureau of Labor Statistics announced that in January 2013, of all adult Americans, (143,322,000 were employed), (12,332,000 were unemployed), and 89,008,000 were not in the labor force. Use this information to calculate:

1. the adult population
2. the labor force
3. the labor-force participation rate
4. the unemployment rate

Problem 2: Are the following workers more likely to experience short-term or long-term unemployment? Explain.

1. a construction worker laid off because of bad weather
2. a manufacturing worker who loses his job at a plant in an isolated area
3. a stagecoach-industry worker laid off because of competition from railroads
4. a short-order cook who loses his job when a new restaurant opens across the street
5. an expert welder with little formal education who loses his job when the company installs automatic welding machinery

Problem 3: Which of the following are considered money in the U.S. economy? Which are not? Explain your answers by discussing each of the three functions of money.

1. a U.S. penny
2. a Mexican peso
3. a Picasso painting
4. a plastic credit card

Problem 4: Suppose that the reserve requirement for checking deposits is and that banks do not hold any excess reserves.

1. If the Fed sells of government bonds, what is the effect on the economy's reserves and money supply?
2. Now suppose the Fed lowers the reserve requirement to , but banks choose to hold another of deposits as excess reserves. Why might banks do so? What is the overall change in the money multiplier and the money supply as a result of these actions?

Problem 5: Suppose that this year's money supply is $500 billion, nominal GDP is $10 Trillion , and real GDP is $5 Trillion .

1. What is the price level? What is the velocity of money?
2. Suppose that velocity is constant and the economy's output of goods and services rises by 5 percent each year. What will happen to nominal GDP and the price level next year if the Fed keeps the money supply constant?
3. What money supply should the Fed set next year if it wants to keep the price level stable?
4. What money supply should the Fed set next year if it wants an inflation of 10 percent?

Problem 6: Let's consider the effects of inflation in an economy composed of only two people: Bob, a bean farmer, and Rita, a rice farmer. Bob and Rita both always consume equal amounts of rice and beans. In 2013, the price of beans was $1 and the price of rice was $3.

1. Suppose that in 2014 the price of beans was $2 and the price of rice was $6 . What was inflation? Was Bob better off, worse off, or unaffected by the changes in prices? What about Rita?
2. Now suppose that in 2014 the price of beans was $2 and the price of rice was $4 . What was inflation? Was Bob better off, worse off, or unaffected by the changes in prices? What about Rita?
3. Finally, suppose that in 2014 the price of beans was $2 and the price of rice was 1.50 . What was inflation? Was Bob better off, worse off, or unaffected by the changes in prices? What about Rita?
4. What matters more to Bob and Rita-the overall inflation rate or the relative price of rice and beans?

Problem 7: How would the following transactions affect U.S. exports, imports, and net exports?

1. An American art professor spends the summer touring museums in Europe.
2. Students in Paris flock to see the latest movie from Hollywood.
3. Your uncle buys a new Volvo.
4. The student bookstore at Oxford University in England sells a copy of this textbook.
5. A Canadian citizen shops at a store in northern Vermont to avoid Canadian sales taxes.

Problem 8:

1. A can of soda costs $0.75 in the United States and 12 pesos in Mexico. What is the peso-dollar exchange rate if purchasing-power parity holds? If a monetary expansion caused all prices in Mexico to double, so that soda rose to 24 pesos , what would happen to the peso-dollar exchange rate?