Question

1)

In the following scenario, Between 2015 and 2016, The CPI of a small nation rose from 200 to 205 between these years and household incomes rose by 5% during these years. A claim is made that "Real incomes of the households remain unchanged: "

DO YOU AGREE/DISAGREE WITH THE CLAIM? EXPLAIN BRIEFLY IN 2-3 LINES ONLY.

(ii) : Who are the winners during high rates of inflation: Borrowers or lenders? Why?

Explain in 1-2 lines only.

2.

GDP will not be affected as a result of shutdown since the Federal agents will be repaid since the shutdown has ended.

AGREE/DISAGREE? EXPLAIN BRIEFLY IN 2-3 LINES ONLY.

Answer 1

a) increase in the Inflation = ((205 -200) / 200 ) x 100

= the inflation has increased by 2.5% and the income has increased by 5%. the statement that the household real income has increased is true.

b) Borrowers are the winners at the time of inflation because when they are returning the amount the purchasing power of the money is much less. that benefits the borrowers.

c) Generally they are not paid but recently the president has signed the bill guaranteeing that the agents will be paid. That will increase the salary part of the GDP but the productivity affected will hurt the GDP and it will decease.