Flowerland is an open economy with a flexible exchange rate regime. The natural rate of unemployment is 5%, the friction

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Flowerland Is An Open Economy With A Flexible Exchange Rate Regime The Natural Rate Of Unemployment Is 5 The Friction 1 (353.14 KiB) Viewed 52 times

Flowerland is an open economy with a flexible exchange rate regime. The natural rate of unemployment is 5%, the frictional rate of unemployment is 4%, and the actual rate of unemployment is 7% (a) What is the numerical value of the cyclical rate of unemployment in Flowerland? (b) Assume the foreign demand for lavender oil produced in Flowerland increases. What will happen to each of the following in Flowerland in the short run? (1) Aggregate demand. Explain. (ii) Cyclical unemployment. The table shows the market basket quantities and prices of lavender oil and roses, the only two goods produced in Flowerland. 2019 2020 Goods Quantity (in units) 40 Lavender oil Roses Price per Unit $3 $20 Price per Unit $4 $25 4 (c) Assume 2019 is the base year. Based on the data in the table, calculate the price index for year 2020 in Flowerland. Show your work. (d) If nominal income in Flowerland increased by 20% from 2019 to 2020, will the standard of living of the average citizen of Flowerland increase, decrease, or stay the same from 2019 to 2020? Explain.