Question

Suppose you have $150,000 in a bank term account. You earn 5% interest per annum from this account. You anticipate that the inflation rate will be 3% during the year. However, the actual inflation rate for the year is 6%.

1. Calculate the impact of inflation on the bank term deposit you have.

ii. Examine the effects of inflation in your city of residence with attention to food and accommodation expenses.

iii. The Australian Bureau of Statistics (ABS) reported in May 2016 that the civilian population in Australia over 15 years of age was 19.8 million. Of this population of 19.8 million Australians, 12.5 million were employed and 0.7 million were unemployed. Calculate Australia’s labor force and the number of people in the civilian population who were not in the labor force?

Answer 1

(i) Impact of inflation on bank deposits

· In the given case, the real inflation rate [6%] is more than the expected inflation rate [3%].

· When the inflation levels increase, various fiscal measures and monetary policies would be introduced in the economy so as to reduce the flow of money in the economy.

· The major monetary policy that would be undertaken is to increase the savings interest rates so that savings becomes attractive which would result in reduction of money in the economy

· Thus, with expected rise in the inflation rates, the interest rates would be raised and the deposited amount would get more revenue as returns than what would have been obtained in case of normal expected inflation levels.

(ii) Impact of inflation on food and accommodation expenses

· Inflation is a condition of a steady rise in the price levels of goods in an economy

· In the given case, the real inflation levels are more than the expected inflation levels, which means that the price levels of goods would be more than expected.

· Food and accommodation form the basic needs of a society and thus the inflation rise is expected to affect those items on a large scale.

· In the given situation, the food and accommodation expenses would be more than expected.

· With measures taken by the fiscal and monetary authorities of the economy, the money supply would fall which would result in reducing the consumption and demand in the economy which would help in regaining the price levels in the market.

(iii) According to the given statistics,

Civilian population aged over 15 years = 19.8 million

Employed population over 15 years of age         = 12.5 million

Unemployed population above 15 years of age = 0.7 million

· The labour force in an economy refers to the work force that are willing or capable to work and doesn’t matter whether they are employed or not.

Thus, as per the statistics, total population capable of doing work = 12.5+.07

                                                                                                         = 13.2 million

Total population not included in the labour force = 19.8-13.2

                                                                             = 6.6 million