PART 1

1. What is the difference between "out of the workforce" and "Unemployed"?

2. If the number of employed people is 10 million, the number of unemployed people is 2 million, and the total adult population is 18 million, what is:

- The unemployment rate?

- The labor force participation rate?

3. What happens to the unemployment rate when an unemployed person stops looking for work and is no longer in the work force?

4. Is all unemployment bad? Why or why not (answer in 2 sentences or so).

PART 2

What is the economic meaning of money? What are its functions?

What are the three components of M1?

Remembering that currency in a bank's vault is not considered part of the money supply, describe why a consumer depositing $1000 in currency (part of M1) in a bank account and receiving a demand deposit (also part of M1) in the amount of $1000 in exchange does not change the money supply (M1).

Assuming the reserve ratio is 10%, how much of the $1000 deposit must the bank keep in reserves? How much can it loan out?

Suppose the Federal Reserve sells a bond for $1000. The money goes from ___________ (the Fed or the public's hands) to

_____________ (the Fed or the public's hands) and the amount of currency in the public's hands __________ (decreases or increases)