1. In Europe between 1973 and 1985 there were no job creation and unemployment increased fivefold.

2. The high unemployment meant that productive workers were not being used preventing the economy to grow.

3. The principle fear of low unemployment is that it will cause inflation to increase. If the government wants to reduce the inflation rate, it must reduce demand so as to drive unemployment above this rate, termed “the no accelerating inflation rate of unemployment.” NAIRU is an example of the economy where the government is trying to keep employment high by keeping demand high. The problem is a labor shortage causes higher premiums to be paid for skilled labor. The government must accept an unemployment rate that is sufficiently high on the average demand to real wages do not exceed their productivity growth, and firms do raise their prices faster than their costs. Work productivity must be the determining factor for real wages.

4. Which is more serious problem 6 percent unemployment or 5 percent inflation? The trend tendency is for inflation to rise while unemployment is low. Paul Krugman says, “America’s highly competitive and flexible labor markets made room for all the new entrants and limited wage increases to rates consistent with our slow productivity growth.”

5. If we spend more on imports than foreigners spend on our exports, the result is reduced demand for American labor.

6. The trade deficit has a cost, a gradual mortgaging of future US income to foreigners. When we buy more foreign goods than we sell, we must cover the cost by selling them assets: stocks, bonds, real estate, and whole corporations to foreigners.

7. Financial obligations to foreigners means the US will be obligated to deliver a stream of interest payment to foreign bondholders and dividends to foreign stockholders. The payments to foreigners are a direct drain on our resources. The big risk is the US could be exposed to financial crisis whenever the confidence of foreign investors is shaken, the confidence game.

8. In 1980, US national savings began to fall sharply. Amazingly, US national savings in 1980 was over 10 percent, a healthy percentage. The consumer increased consumption of foreign goods using borrowed money. The trade deficit spending was financed by the selling of assets to foreigners and not US national savings. In 1980s, US National saving fell, consumption spending increased, inflows of foreign investment took the place of domestic saving. The US was importing more than it was exporting.

9. In the 1980s, if US investment demand was funded by US national savings then interest rates would have increased because saving amounts fell short of investment demand. The US became dependant on foreign capital to finance investment and foreign inflows of capital financed the debt. Interest rates rose, dollar dominated assets became attractive to foreigner, and the dollar gained strengthen against other currencies. The decline of National savings led to a massive importing of debt.

10. Should the value of each currency be determined by a gold standard? Today, debt has replaced gold as the debt reserve. The federalist preached credit was necessary for a prosperous economy. However, debt impoverished with the debt weight of interest and dividend payments.

11. A reduction in the trade deficit in the US will result in recessionary pressures domestically and inflation abroad.

12. The exchange rate determines capital flows and changes in the trade balance. A weak dollar cause exports to increase and strong dollar causes imports to increases in general terms.

13. If the Fed expanded the supply of money, the dollar would have become weaker, short-term exports increased, and inflation.

14. The solution is to switch the demand for foreign goods to US goods. The way the government does accomplishes this goal is by reducing the value of the dollar (inflation), imposing tariffs and quotas, and a policy to reduce domestic demand, so the expenditure switching policies don’t feed inflation.

15. Inflation reduces the competitiveness of industrial companies at any given exchange rate. Inflation causes US prices to raise in equal proportion to the decline of the dollar and this affects US competitiveness.

16. Lower imports will mean a lower supply of dollars on the foreign exchange market and a stronger dollar. The rise of the dollar would cut exports.

17. Given the diminishing expectations of the American people, getting inflation down to a point where prices double every 15 years is good enough.

18. The harm of inflation is that prices are constantly changing which can distort decisions and reduce economic efficiency. Inflation causes paper gains for owners of assets and so inflation may discourage saving and capital formation and increase taxes. Inflation may create capital losses, reduced taxes, and encourages corporate debt. Investors have difficulty determine profits and losses that are inflationary illusions.