1.What is diversification? Why is it important to diversify when investing?

2.Between stocks and government bonds, which asset has more risk?Which pays a higher average of return?

3. What are demand deposits and why should they be included in the stock of money?

4.Who is responsible for setting monetary policy in the United States?How is this group chosen?

5.What are reserve requirements? What happens to the money supply when the Fed raises reserve requirements?

6.Explain how an increase in the price level affects the real value of money.

7.Explain the difference between nominal variables and real variables and give two examples of each.

8.What are the costs of inflation?Which of these costs do you think are most important for the US economy?

9.Define net exports and net capital outflow.Explain how they are related.

10.Define purchasing-power parity and explain how it works.