Question

d) (5 points) If banks in Lebanon offer 7% annual return for accounts denominated in Lebanese lira but only 1% for dollar accounts. Then, what is the expected depreciation in Lebanese lira (against dollar)? Explain. e) (7.5 points) Suppose production technology A increased in Morocco by 10 percent. What happens to real exchange rate and nominal exchange rate between Morocco and Lebanon? Could you compare the magnitude of these changes in terms of percentage points? Assume Morocco and Lebanon are small open market economies, so they have negligible impact on world markets and also on each other's trade (relative to the rest of the world). Keep inflation expectations and money supplies constant in both countries. Assume Cobb-Douglas production function. f) (5 points) We calculated steady-state frictional unemployment rate as where f is the fraction of unemployed who find jobs by the end of the month, and s is the fraction of employed who separate from their jobs by the end of the month. It was the case when labor supply was constant with no entry and exit. Suppose now that labor supply is growing at rate g each month and new entrants start as unemployed. Find the steady-state frictional unemployment.. How does that depend on f, s and g? Do countries with larger population growth rate have lower or higher frictional unemployment rate (keeping everything else fixed)? Explain.

Answer 1

d) Expected depreciation in lira against dollar = $\frac{1.07}{1.01}-1=0.0594=\boldsymbol{5.94 \%}$ ​​​​​​

I can only answer 1 question at a time so I am solving question d). Please do rate me and mention doubts in the comments section.