Question

1-In the economy of Australia, the rate of separation from the job is 10%, while the probability of finding a job among unemployed is 18%. The steady state level of unemployment is *

2-In a small open economy, if exports equal $5 billion and imports equal $7 billion, then there is a trade _______ and _______ net capital outflow *

3-In a small open economy, the interest rate is determined by the *

4-Suppose that foreign countries begin to subsidize investment by instituting an investment tax credit, then *

5-When exports exceed imports, all of the following are true except: *

6-If the rate of job separation is 0.01 per month and the natural rate of unemployment is 10%, then the rate of job finding is *

7-The steady state condition for unemployment states that *

8-Suppose the price of a Big Mac hamburger is $3.06 in the United States and 10.5 yuan in China. Furthermore, suppose the nominal foreign exchange rate is 8.06 yuan per dollar. The US real exchange rate is *

9-In an open economy, the trade balance (net exports) *

10-Assume a small open economy operation initially at world interest (r*= r) where the balance ‎trade is balanced (X=IM).‎ When the government conducts a contractionary fiscal ‎policy the____ *

Answer 1

1. Note that when the chance of finding a job is 18% and the chance of separation from a job or losing it is 10%, then in equilibrium, the number of employed people who leave their jobs is equal to the unemployed people who find their jobs.

Thus, sE=fU where s= rate of job separation, f= rate of job finding,

fU=s(L-U) where employed = total labor force minus unemployed

fU=sL-sU

Now, solving for U/L which is the rate of unemployment which gives us (f+s)U=sL

U/L=s/(s+f)

Thus, the rate of unemploymnet= 10/(10+18)=10/28=0.357 or 35.7%

2. When exports are equal to $5 billion and imports are $7 billion, we have a trade deficit as imports are greater than exports. The net capital outflow will be equal to 7-5= $2 billion.

3. In a small open economy, the interest rate is determined by the world interest rate, in fact, the same as that. Because such an economy is small enough to influence world interest rates.

4. Suppose that foreign countries begin to subsidize investment by instituting an investment tax credit, then the investment demand will increase and the money will flow out of the country further leading to a rise in the interest rates.