Assignment 3

ECON201 (1st Term 2021-2022)

Deadline: 02/12/2021 @ 23:59
Course Name: Macroeconomics Student’s Name:
Course Code: ECON201 Student’s ID Number:
Semester: I CRN:
Academic Year: 1442/1443 H, 1st Term

For Instructor’s Use only

Instructor’s Name:
Students’ Grade: /5 Level of Marks: High/Middle/Low
QUESTION 1

1. Money multiplier

Indicates how an initial deposit can lead to a bigger final increase in the total money supply.

1
Money multiplier =
Reserve ratio

1
= = 10
10 %

2. Increase in the total amount of deposits in the banking system.

Total deposit = Initial deposit x Money multiplier

Initial deposit = $1000

Money multiplier = 10

Total deposit = $1000×10 = $10000

Deposit increment = Total deposit – Initial deposit

= $(10000 ̵ 1000)

= $9000

3. Increase in the money supply.

Change in money supply = Change in Reserve × Money multiplier

Excess Reserve = 100% ̵ 10% = 90%

= 90% × 1000 = 900

Thus, change in money supply = $900 × 10 = $9000

QUESTION 2: Labor Force, Labor Participation Rate and Unemployment Rate

1 Employment Ratio, Labor Participation Rate and Unemployment Rate

In Year 1: Country A- Labor Force = 100

Employed = 90

Not in the labor force = 50

In the course of year 2;

10% of the employed are rendered unemployed

10
Unemployed = × 90=9
100

20% of unemployed become employed

20
Employed ×10=2
100

5% of employed leave the labor force

5
Not in labor force = × 90=5
100

4% of those in the labor force become employed

4
Employed = ×50=2
100

Conclusion

Employed = 90 ̵ 9 +2+2 = 85
Unemployed = 10+9 ̵ 2 = 17

Labor Force = 100 ̵ 5 = 95

Not in the labor force = 50 + 5 = 55

2 Data table

In Year 1 In Year 2
Population 150 150
Labor Force 100 95
Employed 90 85
Unemployed 10 10

Employed
Employment Ratio =
Population

85 17
= =
150 30

Labor participation rate = Active employed population/ unemployed population

85
=
95

Unemployed population
Unemployment rate =
Total population

17
=
102

QUESTION 3

Asset side Liability side

Reserves $1000 Deposits $7000

Loans $6000

1
1 Money multiplier =10
10 %

Reserves = Deposits x money multiplier

= $ 7000 x 10 = $70000

2 Excessive reserves = Total Reserves – Deposits

= $70000 - $7000

= $63000

3 How much the bank can increase its loans.

To determine the extent to which the bank can increase its loans, we factor the ratio of the

excessive reserves to the sourced loans

= Excessive Reserves ÷ Loans

= $63000 ÷ $6000 = x10.5