Question

1.) In 1988 the value of RGDP was $8,474.492 billion, the population was 244.499 million, and the number of people employed was 115,060 measured in thousands Calculate employment as a percentage of the population. Round to the nearest whole number.

2.) If the average wage paid to the worker was $20 in the year 1990 and $30 in the year 2000, then the average worker in the year 2000 must have been better off in terms of purchasing power. True or False

3.) If your employer gives you a raise that is less than the inflation rate, then your real salary with have declined. True or False.

4.) You deposit $500 in a savings account and one year later you have $535. At the same time, the CPI increases from 120 to 126. The nominal interest rate is _% and the real interest rate is _%. Enter whole numbers.

5.) The consumer price index increased from 120 to 132. If you received a raise equal to 10% during this time period then your real income has decreased. True or False.

6.) Each month you spend $500 buying coffee. If the price of coffee increases from $2 to $3, what happens to your purchasing power?
- It increases
- It remains unchanged
- It decreases

7.) An increase in the minimum wage is likely to ___ the quantity of labor demanded and at the same time is likely to ___ the quantity of labor supplied.
- increase : increase
- decrease : decrease
- decrease : increase
- increase : decrease

Answer 1

1.) Employment as a percentage of the population = 115060 * 1000 * 100 / 244.499 * 1000000 = 47%

2.) False. This is because purchasing power is measured by real wage rate. Nominal wages can show an increase but a greater increase in inflation could actually lower real wage. Hence we must know what the inflation was in this period, before coming to such a conclusion.

3.) False. Nominal income is increased by a percentage which is less than the inflation rate. Then your real salary should increase because real income rises when rise in nominal income is more than rise in prices.

4.) Inflation rate is (126 - 120)/120 = 5%. The nominal interest rate is (535-500/500) = 7% and the real interest rate is 7% - 5% = 2%.

5.) False. Inflation rate (132 - 120)*100/120 = 10% and rise in nominal wage = 10% during this time period. This implies that real income stays same.

6.) It decreases

7.) decrease : increase