FINAL EXAM 1. Absolute and comparative advantage Comparative advantage is the relative opportunity cost of producing particular goods. Absolute advantage is the ability of a country to produce a specific good with fewer resources (per unit of output) that other countries. 2. Calculate unemployment rate Unemployment rate = # of unemployed people/labor force (only those actively seeking employment) 3. What happens when a bank makes a loan When a bank creates a loan it is creating money because transaction accounts are included in money supply. 4. Types of unemployment Seasonal: unemployment due to seasonal changes in employment or labor supply Frictional: brief periods of unemployment experienced by people moving between jobs or into the labor market. Structural: unemployment caused by a mismatch between the skills of job seekers and the requirements of available jobs Cyclical: unemployment attributable to a lack of job vacancies no economic growth = no jobs 5. Calculating a bank’s excess reserves Reserve ration=bank reserves/total deposits Required reserves=required reserve ratio X total deposits Excess Reserves=total reserves – required reserves 6. Differences in computing GNP and GDP GNP includes all outputs of a nation even if they are made outside the country. GDP only totals what is produce in the borders of a nation even if the company is foreign 7. Why does inflation affect production decision Price uncertainties during times of inflation can affect how a firm expands and invest. If prices are changing rapidly a firm can decide to hold off on investing in production till the prices stabilize again. 8. Who is responsible for buying and selling government securities The Federal Reserve System (the open market committee) 9. what does basic