Question

In: Economics

Workers and employers in economy expected 3% inflation rate for 2015 but actual inflation turns out to be 5%. Kylie


Workers and employers in economy expected 3% inflation rate for 2015 but actual inflation turns out to be 5%. Kylie, a casual worker with no labour contract, has remained unaffected while Susie, a fixed term employee, has become worse-off.

Solutions

Expert Solution

Answer : False, it is so because when actual inflation rate is more than expected inflation rate that is 5% > 3%. This makes cost of production more expensive as inflation rate is high , which will in turn discourage further induced investment which is done for profit motive. This will result in cutting off employment by firm and many employees may lose their jobs. Here Kylie, a casual worker with no labour contract will be losing her job whereas Susie , a fixed term employee will not be losing her job as fixed term employee is with labour contract. Hence Kylie will be worse off and Susie will remain unaffected as Susie is Fixed term employee that is with labour contract.

Assumptions :

1) Closed economy.

2) Only one firm in the economy.

3) Factors other than Inflation rate are constant.

Hence it is concluded that above statement is False.


Related Solutions

If workers and employers agree to a three-year wage contract expecting 3% inflation and inflation turns...
If workers and employers agree to a three-year wage contract expecting 3% inflation and inflation turns out to be 5%, then: a) workers gain and employers gain b) workers gain and employers lose c) workers lose and employers gain d) workers lose and employers lose Please explain why and who are the lenders and borrowers in this case.?
What happens to the actual inflation rate with respect to the expected inflation rate if the...
What happens to the actual inflation rate with respect to the expected inflation rate if the actual unemployment is greater or less than the natural employment
A company finds that one out of every 5 workers it hires turns out to be...
A company finds that one out of every 5 workers it hires turns out to be unsatisfactory. Assume that the satisfactory performance of any hired worker is independent of that of any other hired workers. If the company hires 15 people, what is the probability that the following number of people will turn out to be satisfactory? (Round your answer to six decimal places.) exactly 9
Workers are negotiating their wages and the current expected inflation rate is 5%. Under what circumstances...
Workers are negotiating their wages and the current expected inflation rate is 5%. Under what circumstances workers would experience an increase in their purchasing power at the end of the negotiations?
The interest rate is 10%. The inflation rate is 5% and the expected inflation rate is...
The interest rate is 10%. The inflation rate is 5% and the expected inflation rate is 10%. The actual real interest rate is: less than or equal to -5% greater than -5% but less than or equal to 0% greater than 0% but less than or equal to 5% greater than 5% but less than or equal to 10% greater than 10%
5. If the annual real rate of interest is 5% and the expected inflation rate is...
5. If the annual real rate of interest is 5% and the expected inflation rate is 4%, the nominal rate of interest would be approximately A. 1%. B. 9%. C. 20%. D. 15%. E. 7%. 6. If the annual real rate of interest is 2.5% and the expected inflation rate is 3.7%, the nominal rate of interest would be approximately A. 3.7%. Page | 2 B. 6.2%. C. 2.5%. D. −1.2%. E. 4.3%. 7. You purchased a share of stock...
2. a. If the real interest rate is 5% and the (expected) inflation rate is 0%,...
2. a. If the real interest rate is 5% and the (expected) inflation rate is 0%, what will be the price of a risk free bond that matures in one year with a face value of $500? b. If the (expected inflation rate increases to 2%, what will the price of this bond be? c. Show this change (from a to b) in a graph of the bond market with the quantity of bonds on the horizontal axis and the...
(b) Suppose the economy is initially above potential GDP, and the actual inflation rate is greater...
(b) Suppose the economy is initially above potential GDP, and the actual inflation rate is greater than the expected inflation rate. Use IS-LM model to explain what happens if the Bank Nagara (BNM) adjusts the interest rate to achieve the goal of price stability. (c) If economy is initially at full employment with real GDP to potential GDP. Use the IS-LM model to explain what happens if the economy experiences a recession both with and without automatic stabilizers.
When the actual and expected (or anticipated) inflation rates are both zero, the money interest rate...
When the actual and expected (or anticipated) inflation rates are both zero, the money interest rate must equal the real interest rate. How might inflation affect the money interest rate? The nominal interest rate is determined by the forces of supply and demand in the loanable funds market (in millions of dollars). The following calculator shows the market for loanable funds. You can shift the supply and demand curves by changing the values of the supply and demand shifters on...
Suppose that the mortgage default rate turns out to be higher than the bank expected. How...
Suppose that the mortgage default rate turns out to be higher than the bank expected. How does this fact affect a bank's net worth? A) It reduces it because the bank must write off the value of the loan. B) It reduces it because the bank now has lower liabilities. C) It increases net worth because the bank earns a higher interest rate on riskier mortgages. D) It has no impact. _____ grew as a share of bank lending from...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT