Chapter 32

Chapter 32 focuses on the market for loanable funds. One of two markets, the other being the market for foreign exchange. To begin and aid with explaining, one can look to the previous equation, savings equals domestic investment plus net capital outflow. In foreign market exchange, the real exchange rate adjusts to balance the supply of dollars and the demand of dollars. Since net capital outflow effects both the loanable funds market and the foreign currency exchange market, it is the variable that connects the two markets. Government policies that reduce national saving such as government budget defect reduces the supply of loanable funds while  increasing the interest rate. This higher interest rate reduces net capital outflow, which then reduces the supply of dollars in the market for foreign exchange The dollar's appreciation causes the next exports to fall as prices for exchanging to dollars go up for foreigners so they buy less goods and services. Tariffs and trade quotas help balance trade, however they do not always work one hundred percent of the time. Trade restrictions increase net exports which then increases the demand for dollars in the foreign currency exchange market. This causes the value of dollars to rise compared to the value of foreign goods. This effect causes an offset in the initial impact of trade restrictions on next exports. If for any particular reason, investors that invest in another country change their opinions and thoughts, it could cause serious changes to that country's economy.  Political instability can lead to capital flight, or the removal of foreign investments, which increases interest rates and depreciates the currency

Chapter 31

Chapter 31 discusses the macroeconomics of open markets. Next exports are the value of the domestic goods and services that are sold outside of the original nation that produced them, minus the foreign goods and services that are brought into and sold in the nation. Net capital outflow is the purchasing or acquiring of foreign assets by the domestic residents of the nation minus the purchasing or acquiring of domestic assets by foreigners. Due to the fact that every transaction is the exchange of an asset for a good or service, a nation's net capital outflow is always equal to its net exports. Considering an economy's saving can be used two ways, those being financing investments at home and buying assets abroad, national savings is domestic investment plus net capital outflow. The nominal exchanges rate is the relative price of the currency of two nations while the real exchange rate is the relative price of the goods and services of the two nations.  When nominal exchange rates change so that each dollar buys more foreign currency than previously, then the dollar is appreciating, or gaining value. When the nominal exchange rate for one currency to another decreases, than the dollar is depreciating in value. The theory of purchasing power says that the dollar should be equivalent in purchasing power to those dollars of all other countries. The theory also states that the nominal exchange rate between two countries should also reflect the price level in the two countries.

Chapter 30

Chapter 30 shifts from money, to discussing money growth and inflation. In general, prices in an economy adjust to the equilibrium between money supply and money demand. If the federal reserve increases the supply of money, consequently, inflation increases as well. Nominal variables are measured in monetary units while real variables are measured in physical units. When the money supply is changed it changes the nominal variables not real variables. Monetary neutrality is believed by most to predict the behavior of the economy in the long run. Studies of monetary change on the two variables backs the belief. Money neutrality is the belief that changes in the quantity of money does not effect the real variables. Governments can print money to pay debts, however this leads to hyperinflation. The fisher effect is that when inflation rises, nominal interest rises by the same amount. Inflation does not necessarily make someone poorer because nominal incomes increase at the same rate as well. When governments create money, they gain revenue called inflation tax. Inflation tax is basically a tax on every person in the economy who has money. The velocity of money is the rate at which money is moved between holders and is calculated with the equation of price times quantity of output, divided by the quantity of money. Classical dichotomy is the theoretical difference between the two variables, real and nominal.

Chapter 29

Chapter 29 shifts from unemployment to focusing on the monetary system. Money is the set of assets that people use to to buy things from other people. Thus, money is a medium of exchange between buyers and sellers. Store of value are items that a person can use as a way to transfer purchasing power from now to the future. An item's liquidity is how easy it is to convert that asset into the medium of exchange of that economy. There are two types of money, commodity and flat. Commodity money is value that is in the form of a good that has intrinsic value. An example of this is gold. Flat money has no intrinsic value and is used by the government's law. One form of money is currency. Currency is the physical bills and coins. However, currency is not the only money asset. Demand deposits are another form of money assets that depositors of a bank can demand by writing checks. The federal reserve has 2 main jobs. The first being the regulation of banks and the health of the banking system. The second is the control of money supply, which is the amount of money available in the economy. Decisions made by the central bank are monetary policies. Reserves are deposits that banks contain, but do not loan out to others. If they were to hold all deposits in the reserve, then they would not influence the supply of money. Fractional reserve banking is the system in which banks hold only a small portion of the deposits as reserves. The amount of deposits it holds as reserves is called the reserve ratio.

Chapter 28

Chapter 28 focuses on unemployment. The labor force is made up of two categories, employed and unemployed. People who are not looking for a job are not included in this number. Unemployment rate is the percentage of people in the labor force who are currently unemployed. A country wants the least unemployment rate possible. Whereas the labor force participation rate is the percentage of the adult population that is actually in the labor force. The normal rate of unemployment is the level that unemployment fluctuates. The deviation from this average level is called the cyclical unemployment rate. Many people's actions affect the unemployment rate. Some are unemployed so they can qualify for government financial programs while secretly being paid to remain eligible for them and have reduced taxes. Workers that have given up looking for a job are called discouraged workers. As the years pass, the labor force participation rate is shifting from mostly men, to fifty fifty between men and women.  Frictional unemployment is caused by the time it takes people to find jobs that best fits their skills and tastes. Structural unemployment is caused by the number of jobs available in the market not being enough to provide everyone with one. Job search is the process in which a person searches for a job to fit their skills and tastes. The government program that helps protect people's incomes for when they become unemployed is called unemployment insurance. A union is a worker association that uses numbers to bargain with employers to receive better wages, working conditions, etc.