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‫المملكة العربية السعودية‬

Kingdom of Saudi Arabia ‫وزارة التعليم‬
Ministry of Education ‫الجامعة السعودية اإللكترونية‬
Saudi Electronic University

College of Administrative and Financial Sciences

Assignment 3
Macroeconomics (ECON 201)
Release Date is 31/10/2022

Course Name: Macroeconomics Student’s Name:

Course Code: ECON201 Student’s ID Number:
Semester: Ist CRN:
Academic Year:2022-23-Ist

For Instructor’s Use only

Instructor’s Name:
Students’ Grade: 00 / 10 Level of Marks: High/Middle/Low

General Instructions – PLEASE READ THEM CAREFULLY

 The Assignment must be submitted on Blackboard (WORD format only) via
allocated folder.
 Due date for Assignment 1 is by the End of Week 11 (12/11/2022)
 Assignments submitted through email will not be accepted.
 Students are advised to make their work clear and well presented, marks may be
reduced for poor presentation. This includes filling your information on the cover
page.
 Students must mention question number clearly in their answer.
 Late submission will NOT be accepted.
 Avoid plagiarism, the work should be in your own words, copying from students
or other resources without proper referencing will result in ZERO marks. No
exceptions.
 All answered must be typed using Times New Roman (size 12, double-spaced)
font. No pictures containing text will be accepted and will be considered
plagiarism).
 Submissions without this cover page will NOT be accepted.
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Assignment 3 Questions: Chapter 15, 17 & 18

(10 Marks)
1. A country has 150,000 people. Of these 25,000 are children under the age of 16. 92000 people
have jobs and 8000 don’t have job and are looking for work and 25,000 people are retired.

a. Calculate the labour force participation rate (2.5 Marks)

b. Calculate the unemployment rate (2.5 Marks)
2. What is the inflation tax, and how might it explain the creation of inflation by a central bank?
(2.5 Marks)
3. Suppose a resident of Canada buys some machine tools from a company in Japan. Explain why
and in what directions this changes Canada net exports and Canada net capital outflow. (2.5
Marks)
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Answer:
1.
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a. Calculate the labor force participation rate (2.5 Marks)

Labor Force/Working age Population= (92000+8000)/125,000

=100,000/125,000

=0.8

b. Calculate the unemployment rate (2.5 Marks)

The unemployment rate=Unemployed/Labor force

= (8000/100000) *100

=8%

2. The loss money holders experience due to inflation is known as the inflation tax. Investments

and interest are subject to the inflation tax. Due to this, people's purchasing power decreases,

and they can buy fewer goods and services than they could in an inflation-free environment.

Assume the government needs funds to carry out some initiatives. The central bank prints

money and donates it to the government for use in infrastructure programs. As a result, the

market's overall money supply grows, and inflation rises. Because of inflation, the

purchasing power of the dollar is decreasing relative to what it used to buy. Therefore, the

central bank indirectly taxed you and sent the money to the government. In this case, your

financial situation will remain unchanged. However, the quantity of goods you could

purchase with that sum is now lower than before due to inflation tax (Kwon et al., 2022).

3.
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Spending on imports reduces a country's gross domestic product since the money leaves

the economy. A country's international trade level can be estimated by looking at its net

exports. Net exports can be easily calculated by subtracting the value of a country's total

imports from its total exports. In this case, Canada’s net exports will decrease after buying

some machine tools from a company in Japan. Net exports are equal to net capital outflow

since all overseas transactions involve selling or purchasing assets in return for goods or

services (Blanchard et al., 2016). Therefore, the net capital outflow will also decrease.
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References
Blanchard, O., Ostry, J. D., Ghosh, A. R., & Chamon, M. (2016). Capital flows: expansionary or

contractionary? American Economic Review, 106(5), 565-69.

Madanizadeh, S. A., & Pilvar, H. (2019). The impact of trade openness on labour force participation

rate. Applied Economics, 51(24), 2654-2668.

Kwon, O., Lee, S., & Park, J. (2022). Central bank digital currency, tax evasion, and inflation

tax. Economic Inquiry.