1. The labor force consists of the number of employed (138,547,000) plus the number of unemployed (6,021,000), which equals 144,568,000.

To find the labor-force participation rate, we need to know the size of the adult population. Adding the labor force (144,568,000) to the number of people not in the labor force (67,723,000) gives the adult population of 212,291,000. The labor-force participation rate is the labor force (144,568,000) divided by the adult population (212,291,000) times 100%, which equals 68%.

The unemployment rate is the number of unemployed (6,021,000) divided by the labor force (144,568,000) times 100%, which equals 4.2%.

3. Younger women experienced a bigger increase in labor force participation than older women because more of them have entered the labor force (in part because of social changes), so there are more two-career families. In addition, women have delayed having children until later in life and have reduced the number of children they have, so they are in the labor force for a greater proportion of their lives than was the case previously.

4. The fact that employment has increased 2.1 million while unemployment has declined 0.5 million is consistent with growth in the labor force of 1.6 million workers. The labor force constantly increases as the population grows and as labor-force participation increases, so the increase in the number of people employed may always exceed the reduction in the number unemployed.

3. For an asset to be useful as a medium of exchange, it must be widely accepted (so all transactions can be made in terms of it), recognized easily as money (so people can perform transactions easily and quickly), divisible (so people can provide change), and difficult to counterfeit (so people won't print their own money). That's why nearly all countries use paper money with fancy designs for larger denominations and coins for smaller denominations.

For an asset to be useful as a store of value, it must be something that maintains its value over time and something that can be used directly to buy goods and services or sold when money is needed. In addition to currency, financial assets (like stocks and bonds) and physical assets (like real estate and art) make good stores of value.

4. a. If there were an easy way to make limestone wheels, the people on Yap would make additional wheels as long as the monetary value of the wheels was greater than the cost of producing the wheels. The result would be that people would make their own money, so there would be too much money produced. Most likely, people would stop accepting the wheels as money and switch to some other asset as a medium of exchange.

b. If someone in the United States discovered an easy way to counterfeit hundred-dollar bills, they could flood the country with counterfeit currency, thus reducing its value. The result might be a switch to a different type of currency.

5. When your uncle repays a $100 loan from Tenth National Bank (TNB) by writing a check from his TNB checking account, the result is a change in the assets and liabilities of both your uncle and TNB, as shown in these T-accounts:

By paying off the loan, your uncle simply eliminated the outstanding loan using the assets in his checking account. Your uncle's wealth hasn't changed; he simply has fewer assets and fewer liabilities.

6. a. Here is BSB's T-account:

b. When BSB's largest depositor withdraws $10 million in cash and BSB reduces its loans outstanding to maintain the same reserve ratio, its T-account is now:

c. Since BSB is cutting back on its loans, other banks will find themselves short of reserves and they may also cut back on their loans as well.

d. BSB may find it difficult to cut back on its loans immediately, since it can't force people to pay off loans. Instead, it can stop making new loans. But for a time it might find itself with more loans than it wants. It could try to attract additional deposits to get additional reserves, or borrow from another bank or from the Fed.

9. a. If the required reserve ratio is 5 percent, then First National Bank's required reserves are $500,000 x .05 = $25,000. Since the bank’s total reserves are $100,000, it has excess reserves of $75,000.

b. With a required reserve ratio of 5 percent, the money multiplier is 1/.05 = 20. If First National lends out its excess reserves of $75,000, the money supply will eventually increase by $75,000 x 20 = $1,500,000.