Principles of Macroeconomics

1. The financial system helps to match one person's saving with another person's investment. The two markets that are part of the financial system in the U.S. economy are financial markets and financial intermediaries. Financial markets are institutions that savers can directly provide funds to borrowers. Financial intermediaries provide a way for savers to indirectly provide funds to borrowers. Banks and mutual funds are two financial intermediaries.

2. The government budget deficit refers to government spending rather than business or individual spending over a tax revenue. It reduces the amount of loanable funds to firms and households to finance investments and thus increases the interest rate from 5% to 6%. Government borrowing also crowds out private borrowers who are trying to finance investments which ends in falling investments and decreasing economic growth in the long run.

3. The benefit people receive from the market for insurance are the ability to spread risks around more efficiently and lessening the damaging effects of the risks they encumber. Moral hazard and adverse selection impede their ability to work properly.

4. The efficient market hypothesis states that a market is efficient if its prices always reflect all available information. Index funds are consistent with this theory. This says that there is almost no connection and therefore no indication that past prices will predict how future prices will develop.

5. The categories BLS places all adults from 16 and older are employed unemployed and not in the labor force. The labor force is the sum of the employed and unemployed. Unemployment is the number of unemployed divided by the labor force and multiplied by 100. Labor force participation rate is the labor force divided by the adult population multiplied by 100.

6. Frictional unemployment is inevitable because the economy is constantly changing. For example, if consumers prefer Apple to Android, Apple would have to hire...