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المملكة العربية السعودية
وزارة التعليم
الجامعة السعودية اإللكترونية
Kingdom of Saudi Arabia
Ministry of Education
Saudi Electronic University
College of Administrative and Financial Sciences
Assignment 3
Macroeconomics (ECON 201)
Release Date is 08/11/2023
Course Name: Macroeconomics
Student’s Name:
Course Code: ECON201
Student’s ID Number:
Semester: 1st
CRN:
Academic Year:2023-24-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
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The Assignment must be submitted on Blackboard (WORD format only) via the
allocated folder.
The due date for Assignment 1 is 02/12/2023.
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 in your information on the cover
page.
Students must mention the question number clearly in their answers.
Late submissions 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 answers 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 3
Q1: What is money multiplier? How is it related to the reserve ratio? Calculate the total
maximum and total minimum possible money supply due to the deposit of 200 SAR in
a bank. The country follows a fractional reserve banking system, and the Reserve ratio
is 20%.
[2.5 Marks]
Caselet On Unemployment (Question no 2&3)
Many Theories are given by different experts to explain the reasons behind unemployment. One
reason for unemployment may be downswings (periods of recession) in the business cycle.
Another reason behind wide-scale unemployment refers to structural unemployment. Structural
unemployment arises from longer-term changes in the economy, affecting specific industries,
regions, and occupations. Structural unemployment often explains regional unemployment.
Some industries in India have lost their business and so employment to the cheaper imports
coming from abroad.
Some experts explain that new technology is a cause of unemployment which is also known as
technological unemployment. The argument is that the introduction of new technology is
destroying jobs and business while at the same time imports from low-wage developing
countries are undercutting goods produced in this country.
However, many studies may contradict this. New technologies generally help in producing new
products, or services and therefore new areas of employment. Sometimes fewer workers may
be required in some areas of production where specific tasks are taken over by machines, but
rising productivity boosts overall income and then the demand for new jobs in the economy as
a whole.
Q2: What are the main causes of Unemployment? Do you agree that technological upgradation in any industry may cause unemployment in that industry? Provide your
opinion with one example.
[2.5 Marks]
Q3: Structural unemployment in many countries touched its highest peak during the
coronavirus pandemic, but it seems that most of the industries in KSA were not that much
affected. Discuss the role of the Saudi Government in reducing the impact of Corona
pandemic on employment in Saudi Arabia.
[2.5 Marks]
Caselet On Insurance Market (Question no 4)
In a sense, every insurance contract is a gamble. It is possible that you will not be in an auto
accident, that your house will not burn down, and that you will not need expensive medical
treatment. In most years, you will pay the insurance company the premium and get nothing in
return except peace of mind. Indeed, the insurance company is counting on the fact that most
people will not make claims on their policies; otherwise, it couldn’t pay out the large claims to
the unlucky few and still stay in business.
From the standpoint of the economy as a whole, the role of insurance is not to eliminate the
risks inherent in life but to spread them around more efficiently.
The markets for insurance suffer from two types of problems that impede their ability to spread
risk. One problem is adverse selection: The second problem is moral hazard:
Q4: Adverse Selection and Moral Hazard are two important problems of Insurance
companies. Explain each with the help of an example. Also, suggest solutions to the
Insurance companies to tackle these problems in the insurance market.
[2.5 Marks]
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