Question

1. If the number of discouraged workers decreases because many of them start to look for work, everything else remaining the same, then the

Select one:

a. labour force participation rate will decrease.

b. non labor force will increase.

c. employment rate will decrease.

d. the labor market population will increase.

e. none of the above.

2.  

Initially, you earn $10 income per hour, and the price level is 100. Your income now increases to $20 per hour and the price level increases to 175. What happens to your purchasing power?

Select one:

a. It doubles in value

b. It increases in value by less than double

c. It increases in value by more than double

3.  

Suppose a trade union and a firm agree to increase the wage rate by the same percentage as the increase in the Consumer Price Index. If the CPI increases by 5 percent, then the real income of workers will

Select one:

a. decrease by 5 percent, accounting for bias in the calculation of the CPI.

b. increase by 5 percent as well.

c. increase by more than 5 percent, accounting for bias in the calculation of the CPI.

d. increase by less than 5 percent, accounting for bias in the calculation of the CPI.

e. remain unchanged, accounting for bias in the calculation of the CPI.

4.  

Refer to the table below, which shows price data for a hypothetical economy, between which two years did the price level increase the most?

YEAR	CPI
2000	106
2001	108
2002	103
2003	106
2004	109
2005	105

Select one:

a. 2000 and 2001

b. 2001 and 2002

c. 2002 and 2003

d. 2003 and 2004

e. 2004 and 2005

Answer 1

1) Discouraged workers considered outside of labour force. So when Discouraged workers stsrt looking for work, they considered into labour force .so labour force size will increase or labour market population will increase.

2) purchasing power refers to real income .

Real income= Income / price level

Let assume he work 10 work.

Initial purchasing power=10*10/100=1

New purchasing power=20*10/175=1.14

So purchasing power increase but less than double.

3) Because in CPI by 5% ,will also increase wage of workers by 5% .

Real income= wage/ price index

New real income=1.05wage/1.05 price index=wage/price index.

So because of union and firms contract, increase in CPI , increase wage, so real income will be unchanged.

4) inflation between 2000-01={(108-106)/106}*100=2/106]*100=1.88%

Inflation between 2002-03=(106-103)/103]*100=3/103*100=2.91%

Inflation between 2003-04=(109-106)/106]*100=3/106]*100=2.83%

So price level increase higher between 2002 to 2003.