Question

If the cost of a typical consumption basket in an economy rises from $40 to $48 in a period of one year, then there is an inflation of __________ in that time period. 8 8% 20% O 44

Answer 1

1. The inflation rate is calculated as follows , normally the consumer price index is used to calculate the inflation rate in the economy. The consumer price index measures the weighted average for a certain type of goods and services bought by the consumer.

Inflation rate ,

.

= (48 - 40/40) x 100

$=\left ( 8/40 \right )\times 100$.

$=0.2\times 100$.

.

= 20

Ans: %.

20

2. The price level is calculated in the following way ,

Price level= ( Cost of market basket in the current year/ Cost of market basket in the base year)$\times$100.

  $=\left ( 48/36 \right )\times 100$.

  $=1.33\times 100$.

  $=133$.

Ans: .

3.If the economy's output is greater than the potential level of output that is called an inflationary gap, the inflationary gaps occurs during the times of boom so the economic activities will be very high and more and more people will get jobs. The unemployment rate will fall and it is likely to be less than the natural rate of unemployment.

Ans: Less than.

4.

The inflation rate is calculated as below,

$=\left ( 126-120/120 \right )\times 100$.

$=\left ( 6/120 \right )\times 100$.

$=\left 0.05\times 100$.

$=5$.

Ans: %.

5. The strructural unemployment occurs due to the technological changes in the economy , the cyclical unemployment results from the business cycle fluctutaiions and the frictional unemployment is kind of unemployments results from when the people switches from one job to another. The natural rate of unemploymnent is that the unemployment level when the economy is producing at the potential level.

Ans: Natural rate of unemployment.