Question

. For each statement below, state whether it is true, false, or uncertain. Explain your answer. a. An unemployment rate that is close to zero indicates that the economy is strong b. An economy's inflation rate can be calculated as the year-to-year percentage change in its GDP deflator or its CPI. Both methodologies however lead to the same inflation rate c. High structural unemployment could eventually lower the labor force participation rate d. Suppose you find that Uganda's Lorenz curve has become steeper (further away from the line of equality) over time. This means that the proportion of Ugandans lving in extreme poverty has increased over time as the share of income going to the poorest sections of the country has fallen. c. Two countrics with thc same Gini coeflficient can be characterized by diffcrent underlying incomc distributions Numcrical questions . Using the data for income distribution found in the table below, compare the extent of income inequality between USA and Sweden using as many measures of income inequality as possible % Of Total National Income United States Sweden Top quintile of income earners 50.2 Fourth quintile of income earners 23.4 Middle quintile of income carners 14.6 Second quintile of income earners 8.5 Bottom quintile of income earners 3.3 37.0 22.7 17.6 14.0 3. The table below uses data for 2014. All population values are in thousands Country Working Labor force Employed Unemployed Unemployment LFPR (%) population rate (%) Japan 77,550 France Germany 53,387 62,886 2,416 2,975 30,052 56 42.165 a. Fill in the blanks in the table above b. Explain how more stringent labor laws in Germany and France that make it difficult for firms to firc workers during economic downturns could lead them to having higher unemployment rates compared to Japan.

Answer 1

Answer 1:

a. True. If the unemployment rate is close to zero in any economy, then it indicates that the economy is strong. This is because as more and more people in an economy become employed, the economy becomes strong.

'b. False. Using CPI and GDP deflator to measure changes in the inflation rate leads to different inflation rates in the economy. This is because CPI uses cost of the basket of goods to compute inflation rate and GDP Deflator used nominal and real GDP to compute change in inflation rate and thus give different values of inflation rate.

c. Uncertain. This is not certainly true. If structural unemployment is high, then people will try to skill themselves more and learn new things to get employed. Thus, it cannot be certainly true that high structural unemployment leads to lower labor force participation rate.

d. True. As the Lorenz curve become steep, the inequality in the country will rise.