Question

State whether you agree or disagree with the following statements.

If all wages, salaries, welfare benefits, and other sources of income were indexed to inflation, inflation would not be considered a problem.

Discouraged workers are considered frictionally unemployed.

Answer 1

1> Agreed. If wage, welfare benefit, price, salary everything increases instantaneously at the same rate of inflation, then it is not a problem. Because, it is just the change in the value of the currency, people do not have any change in the purchasing power. So, it would not be considered a problem.

2> Disagreed. Frictional unemployment occurs when an unemployed person is looking for a job. This is the time lag to find a new job. On the other hand discouraged workers have lost their will to search for jobs, so they are not part of the labor force.