Question

Consider the following price indexes

2018 Consumer price index: 251.107   2019 Consumer price index: 255.651

1. which year is likely the base year?

2. what is the inflation rate from 2018 to 2019?

3.The real interest rate is 3 percent, and the nominal interest rate is 5 percent. What is the anticipated rate of inflation?

4.A nations frictional unemployment rate is 1%. its cyclical rate of unemployment is 9.7%, and its structural unemployment rate is 4%. what is the nations overall rate of unemployment?

Answer 1

1. Year 2018 is likely the base year.

This is because we generally see price indices rising, as compared to the base year.

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2. Inflation rate from 2018 to 2019 = [(255.651 - 251.107) / 251.107] x 100 =

Inflation = 1.81%

Inflation rate is the rate of change of the price index.

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3. If nominal interest rate = 5%, and real interest rate = 3%,

anticipated inflation is: 5 minus 3 =

Inflation = 2%

As, real interest rate plus inflation = nominal interest rate

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4. The actual rate of unemployment = frictional + cyclical + structural + seasonal

= 1 + 9.7 + 4

Unemployment = 14.7%

In this case, seasonal unemployment is zero. By definition, unemployment contains these four components.