Q. Why can't all the balance of payments accounts be in surplus? What factors determine the demand for British pounds in foreign exchange markets? How are exchange rates determined under a flexible exchange rate system?

1. Suppose that the U.S. non-institutional adult population is 230 million and the labor force participation rate (LFPR) is 67 percent.
a. What would be the size of the U.S. labor force?
b. If 8 million adults are not working, what is the unemployment rate?

2. (Types of Unemployment) Determine whether each of the following would be considered frictional, structural, seasonal, or cyclical unemployment:
a. A UPS employee who was hired for the Christmas season is laid off after Christmas.
b. A worker who is laid off due to reduced aggregate demand in the economy.
c. A worker in a DVD rental store becomes unemployed as video-on-demand cable service becomes more popular.
d. A new college graduate is looking for employment.

3. (Inflation) Here are some recent data on the U.S. consumer price index:
Year CPI
1999 166.6
2000 172.2
2001 177.1
Compute the inflation rate for each year 1999-2001 and determine which years were years of inflation. In which years did deflation occur? In which years did disinflation occur? Was there hyperinflation in any year?

4. (Sources of Inflation) Using the concepts of aggregate supply and aggregate demand, explain why inflation usually accelerates during wartime.

5. (Unemployment in Various Groups) Does the overall unemployment rate provide an accurate picture of the impact of unemployment on all U.S. population groups? Do you think the zero unemployment is possible? Why? Why not? Briefly discuss
.