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Selcuk University - Neba Wais Alqorni - Economy, Assignments of Economics

Selcuk University - Neba Wais Alqorni - Economy

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2019/2020

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SELCUK UNIVERSITY
FACULTY OF ECONOMY AND ADMINISTRATION SCIENCE
DEPARTEMENT OF INTERNATIONAL RELATIONS
ECONOMIC II : FINAL EXAM
Neba Wais Alqorni
180613056
International Relations II
Öğretim Üyesi :
Doç. Dr. Esra KABAKLARLI
Konya , Turkey
2020
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SELCUK UNIVERSITY

FACULTY OF ECONOMY AND ADMINISTRATION SCIENCE

DEPARTEMENT OF INTERNATIONAL RELATIONS

ECONOMIC II : FINAL EXAM

Neba Wais Alqorni

International Relations II

Öğretim Üyesi :

Doç. Dr. Esra KABAKLARLI

Konya , Turkey

MACROECONOMICS FINAL EXAM

1. Suppose the size of working age population in Freedonia is 100 million, number of employed people is 30 million and size of workforce is 50 million, what is the size of labor force participation rate %? How many people are unemployed in **million? , what is the size of unemployment rate %

  1. Consumption function : C= 150+ 0. 6 Y** Investment function : I = 100 Y = C +I a. What is the marginal propensity to consume in Freedonia and What is the marginal propensity to save? b. Solve the equation for equilibrium income

manufacturing activity. However, the economy has since received a severe blow due to the health crisis and containment measures: The manufacturing PMI fell to a record low in April after entering contractionary territory in March, while the sector’s capacity utilization rate fell to an 11-year low in April. Moreover, business sentiment soured in the same month to the lowest level since February 2009, and consumer confidence fell to a survey-record low. More positively, the gradual lifting of restrictions from May should revive activity somewhat. GDP is expected to shrink notably this year owing to the Covid-19 pandemic. Exports and tourism are likely to suffer and weaken the country’s external position, while domestic containment measures will limit economic activity at home. While fiscal stimulus could soften the impact somewhat, a recession looks inevitable.Consensus Forecast panelists project the economy to contract 3.2% in 2020, which is down 2.9 percentage points from last month, and to expand 4.7% in 2021. The Unemployment Rate The unemployment rate in Turkey dropped to 13.6 percent in February 2020 from 14. percent in the corresponding month of the previous year, as the number of unemployed went down by 502 thousand to 4.228 million. Meantime, employment fell by 602 thousand to 26. million, with job losses recorded mainly in agriculture, construction and services. The labour force participation rate declined to 49.9 percent from 52.5 percent a year earlier and the employment rate decreased to 43.1 percent from 44.8 percent. Data 1. Graph of Unemployed Data of Turkey. The Growth Rate The Growth Rate Turkey's economy advanced 4.5 percent year-on-year in the first quarter of 2020, easing from a 6 percent growth in the previous period and missing market expectations of a 5.4 percent expansion, amid the coronavirus pandemic. Household consumption grew 5.1 percent, slowing from a 6.8 percent rise in the last quarter of 2019; and fixed investment shrank 1.4 percent, faster than a 0.6 percent contraction. On the other hand, government spending expanded 6.2 percent, after growing 2.7 percent in the prior quarter. Net external demand contributed negatively to the GDP as imports jumped 22.1 percent (vs 29. percent in Q4 2019) while exports dropped 1 percent (vs 4.4 percent in Q4). On a seasonally adjusted quarterly basis, the economy expanded 0.6 percent, slowing from a 1.9 percent growth in the previous period. Data 2. Graph of Growth Rate Data of Turkey.

Foreign Trade Figures Turkey foreign trade figures was Turkey's trade deficit widened to USD 4.56 billion in April 2020 from USD 2.73 billion in the corresponding month of the previous year. Exports plunged 41.4 percent year-on-year to an over nine-year low of USD 8.99 billion, mainly due to lower sales of manufacturing products (-43 percent) and mining & quarrying (-8.3 percent). Imports dropped 25 percent to an over four-year low of USD 13.55 billion, due to lower purchases of intermediate goods (-30.3 percent), consumption (-16.5 percent) and others (-43. percent). Considering the first four months of the year, the country’s trade gap increased to USD 14.54 billion from USD 8.67 billion a year earlier. Data 3. Graph of Foreign Trade Figures Data of Turkey. Inflation Rate The annual inflation rate in Turkey increased to 11.39 percent in May of 2020 from 10.94 percent in the previous month and slightly above market expectations of 11 percent, mainly due to a weaker lira. Cost advanced faster for food, beverages & tobacco (12.87 percent vs 11.28 percent in April) and transportation (6.69 percent vs 5.54 percent) while prices of housing & utilities eased (14.45 percent vs 14.52 percent). The annual core inflation rate, which excludes energy, food and non-alcoholic beverages, alcoholic beverages, tobacco and gold, rose to 10.3 percent from 9.93 percent in April. On a monthly basis, consumer prices went up 1. percent, after increasing 0.85 percent in the prior month. Data 4. Graph of Inflation Rate Data of Turkey.

in economic activity will put many in serious financial difficulty. More broadly, the unexpected and extensive restrictions to economic activity have not given businesses time to adapt, and all companies’ profits have been hit. This may explain why the initial sell-off in credit was indiscriminate. Yet it is also easy to see which companies and sectors are more materially impacted – energy, consumer cyclicals, retail and autos to name a few. When people are locked in their homes, they aren’t in shopping malls, on airplanes or filling their tanks with petrol. Week 5 : Central Bank and Money Central banks have taken drastic steps to keep their economies afloat during the COVID- 19 lockdowns. In the euro-area, the European Central Bank (ECB) has eased significantly the conditions of its refinancing operations and has announced a new asset purchase programme. This response has triggered fears of a significant increase in inflation, and concerns about whether the ECB measures are compatible with its pricestability mandate and with the limits set by the EU Treaties. Week 6 : Monetary Systems Monetary policy is to provide liquidity to the economy where a supply shock the sudden blockage of productions, caused by health precautions and illnesses also triggers a severe demand shock interrupting cash flows and upsetting the payments system. To contain the deaths of firms and the increase in unemployment, that would be inefficient and unjustifiable in a medium term perspective, the central bank measures must be framed in such a way as to push commercial banks to lend to households and firms where the cash-flow process is disrupted. Besides an appropriate technical framing of the monetary measures, including interest rate incentives for banks, the success of such a vast credit support, which is essential for SMEs, requires immediate coordination with prudential measures and fiscal policy decisions. On the prudential ground the crucial aspect is the treatment of bad loans that will inevitably result: forbearance in classifying the quality of loans could cause lasting damages to transparency while a temporary easing of the relevant capital requirements is inevitable and coherent with their countercyclical role. Week 7 : Balance of payments The pandemic also led to widespread panic among global financial markets, posing a material threat to the existing global financial order. Many observers reckon that the COVID- 19 pandemic is likely to impose enormous loss on the global economy comparable to the 2008- 2009 Global Financial Crisis (GFC). Outlook of global economy, investors anticipate the Chinese economy to bring about a silver lining in that it is among the first group of regions which has brought the COVID-19 under control. The recently announced China's March activity indicators suggest that the Chinese economy has somewhat got back on its feet after a deep fall in the first quarter. Although the domestic consumption and investment may bounce back quickly, the plunging external demand, together with a turbulent global financial market, will weigh on China's growth in the medium to long term. Week 8 : The Government fiscal policy Developed economies such as the United States should not worry about the increase in debt resulting from these measures. Suppose that the combination of increased budget deficits and decreased output leads to an increase in debt-to-GDP ratio of 30 percent. Should this lead policymakers to limit expenditures now by providing more loans rather than grants, or by some other means? Short of a defeat in the fight against the coronavirus, debt will remain sustainable.

And if we lose that battle, debt sustainability will be the least of our problems. Advanced- country governments should not hesitate to run deficits if, given constraints on monetary policy, deficits are required to maintain output at potential. And those constraints on monetary policy, due to very low interest rates, are likely to continue. Indeed, rates are likely to be even lower in the future than they were expected to be before the COVID-19 crisis. Week 9 : International Trade The US-China trade war could be reignited should China be unable to import more from the US.China’s export-oriented model and strong consumption of foreign goods and services began to weaken from February 2020. There is expected to be lower levels of trade given tensions at the political level. The political contours are being shaped by accusations made by Trump that China’s response to the Coronavirus was inadequate. Simultaneously, Beijing is directing blame onto the US, suggesting the coronavirus was created in American laboratories. A culmination of these factors implies that $77 billions of expected trade in goods and services between the US and China which are part of the Phase 1 deal is likely to be much lower. REFERENCES Accessed by https://www.statista.com/statistics/277044/inflation-rate-in-turkey/ 8 June 2020 BIA Newdesk Istanbul , Accessed by http://bianet.org/english/labor/224171-broad- unemployment-could-reach- 16 - million-in-turkey-in-the-aftermath-of-covid- 19 12 June 2020 Accessed by https://www.focus-economics.com/countries/turkey 19 June 2020 Accessed by https://www.brookings.edu/blog/up-front/2020/04/15/the-unemployment- impacts-of-covid- 19 - lessons-from-the-great-recession/ 16 June 2020 Accessed by https://www.avivainvestors.com/en-au/views/aiq-investment- thinking/2020/05/covid- 19 - impact-on-credit-markets/ 19 June 2020 Accessed by https://www.bruegel.org/2020/05/the-european-central-bank-in-the-covid- 19 - crisis-whatever-it-takes-within-its-mandate/ 17 June 2020 Accessed by https://www.g20-insights.org/policy_briefs/monetary-policies-strategies-and- the-covid- 19 - crisis/ 18 June 2020 Accessed by https://www.fxstreet.com/analysis/the-impact-of-covid- 19 - on-chinas-balance-of- payments-and-foreign-reserves-an-update- 202004280725 17 June 2020 Accessed by https://equitablegrowth.org/the-three-ways-fiscal-policy-can-be-used-to-fight- covid- 19 - and-the-coronavirus-recession/ 17 June 2020 Accessed by https://moderndiplomacy.eu/2020/05/02/global-trade-after-covid-19/ 17 June 2020