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Q1

: Saudi Arabia’s Ministry of Human Resources recently announced an increase to the monthly minimum wage from 3000 SAR to 4000 SAR for full-time Saudi workers in April 2021, and introduced a Labor Reform Initiative (LRI) scheduled to take effect on 14

th

March 2021.

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a.Discuss the implications of the above topic.

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b.Will this impact unemployment in the country? How?

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Q2

: Three students have each saved $1,000. Each has an investment opportunity in which he or she can invest up to $2,000. Here are the rates of return on the students’ investment projects:

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[2.5 Marks]

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Harry 5 percent

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Ron 8 percent

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Hermione 20 percent

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a. If borrowing and lending is prohibited, so each student uses only his or her saving to finance his or her own investment project, how much will each student have a year later when the project pays its return?

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b. Now suppose their school opens up a market for loanable funds in which students can borrow and lend among themselves at an interest rate r. What would determine whether a student would choose to be a borrower or lender in this market?

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c. Among these three students, what would be the quantity of loanable funds supplied and quantity demanded at an interest rate of 7 percent? At 10 percent?

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d. At what interest rate would the loanable funds market among these three students be in equilibrium? At this interest rate, which student(s) would borrow, and which student(s) would lend?

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e. At the equilibrium interest rate, how much does each student have a year later after the investment projects pay their return and loans have been repaid? Compare your answers to those you gave in part (a). Who benefits from the existence of the loanable funds market—the borrowers or the lenders? Is anyone worse off?

College of Administrative and Financial Sciences
Assignment-2
Course Name: Macroeconomics
Student’s Name:
Course Code: ECON201
Student’s ID Number:
Semester: II
CRN:
Academic Year: 1441/1442 H
For Instructor’s Use only
Instructor’s Name:
Students’ Grade:
/ 5
Level of Marks: High/Middle/Low
Instructions – PLEASE READ THEM CAREFULLY
•
The Assignment must be submitted on Blackboard (WORD format only) via allocated folder.
•
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.
Assignment 2 Question-Chapters: 12, 13, 14 & 15: – [2.5 Marks]
Q1: Saudi Arabia’s Ministry of Human Resources recently announced an increase to the monthly
minimum wage from 3000 SAR to 4000 SAR for full-time Saudi workers in April 2021, and
introduced a Labor Reform Initiative (LRI) scheduled to take effect on 14th March 2021.
a. Discuss the implications of the above topic.
b. Will this impact unemployment in the country? How?
Q2: Three students have each saved $1,000. Each has an investment opportunity in which he or
she can invest up to $2,000. Here are the rates of return on the students’ investment projects:
[2.5 Marks]
Harry 5 percent
Ron 8 percent
Hermione 20 percent
a. If borrowing and lending is prohibited, so each student uses only his or her saving to
finance his or her own investment project, how much will each student have a year later when
the project pays its return?
b. Now suppose their school opens up a market for loanable funds in which students can
borrow and lend among themselves at an interest rate r. What would determine whether a
student would choose to be a borrower or lender in this market?
c. Among these three students, what would be the quantity of loanable funds supplied and
quantity demanded at an interest rate of 7 percent? At 10 percent?
d. At what interest rate would the loanable funds market among these three students be in
equilibrium? At this interest rate, which student(s) would borrow, and which student(s) would
lend?
e. At the equilibrium interest rate, how much does each student have a year later after the
investment projects pay their return and loans have been repaid? Compare your answers to
those you gave in part (a). Who benefits from the existence of the loanable funds market—the
borrowers or the lenders? Is anyone worse off?
Answer:

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