Question

Do you agree with the statement “The real unemployment rate is underreported, and the real inflation rate is over-reported”? Give examples. Can the government do anything to make a more accurate measure?

Answer 1

Yes, real unemployment rate is often underreported while the real inflation rate is often overreported. This is because if we were to take the actual unemployment rate, then frictional unemployment, which involves a person being unemployed for a certain period of time(less than 6 months) should also be included in the unemployed population. This is because, during those 6 months, he did not do anything productive that has benefitted the nation in the present nor will it benefit the nation in the future.

The real inflation rate is often over-reported because a nation's inflation is usually calculated based on the estimated rates of inflation of the next financial year instead of calculating it on the data of the previous and current year. And since the prices generally tend to be higher in the next financial year as compared to the current price levels, the inflation rate is often over-reported.

The govt. may collect more accurate data through regular surveys in order to get more accurate data. However, this would not be economically viable as huge amount of money will be spent on regular surveys and the economic output will not be much.