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.

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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.

Rahul Sunny answered 2 years ago

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