Real income reflects the purchasing power of a dollar amount of income is the sa
ID: 1206262 • Letter: R
Question
Real income reflects the purchasing power of a dollar amount of income is the same as nominal income when inflation occurs declines during an inflation for all groups in the economy increases during an inflation for all groups in the economy Inflation is an increase in all prices the result of unemployment a sustained decrease in the average or general level of prices a sustained increase in the average or general level of prices Inflation, especially if unanticipated, increases the purchasing power of each dollar reduces all household's real income or purchasing power arbitrarily redistributes real income always leads to hyperinflation During an unanticipated inflation, which of the following would most likely lose purchase households with large fixed interest savings skilled workers with bargaining power anyone with debt, especially fixed interest loans the retired receiving pensions with automatic cost-of-living increases jill just graduated with a pharmacy degree. She is looking for a job and expects to receive what type of unemployment does this represent? cyclical frictional seasonal structural The difference between economic growth and the expansion phase of the business cycle is that indicates that real GDP is increasing while growth is measured by increases in nominal G is a short run fluctuation in output while growth is a long run trend of rising output results in increasing employment while growth results in declining employment is a long run concept while growth is short run which of the following is not an economic resource? money physical capital human capital labor Households receive wages, rent, interest and profit from the sale of resources. This total monetary income revenue saving consumer spendingExplanation / Answer
Real income is the actual buying power of income. it is expressed in terms of noumber of units purchasable from money income. suppose your money income is $100. Each unit of commodity has price $10. So 10 units can be purchased by using $100. It is real income. So real income reflects the purchasing power of a dollar amount of income. Inflatio will reduce purchasing power ad so the real income.
Therefore option (a) is correct.
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29. Inflation is rise in price. If the rise in price is sustained then inflation is said to have present in the economy. So inflation can be rightly defined as sustained increase in the average or general level of price.
Hence option (d) is correct.
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30. When rate of inflation is anticipated, appropriate measures can be taken to keep it under control. When actual inflation surpasses the anticipated level, the excess portion causes unanticipated price rise. It creates a fear in the mind of the people. They starts panic buy to protect them from the ill effect of further rise in price. It increases further. Gradually hyper inflation is observed which is beyond control.
Thus option (d) is correct.
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31. When inflation is unaticipated it will create different impact on different persons as stated below:
a. Household with large fixed interest savings will suffer. Interest is his earning. Its real value will decrease. But it cannot be compensated due to its fixed nature.
b. Skilled workers with bargaining power can put pressure on employer to raise the wage rate for compensating real value loss of dollar causing from inflation. So he will not be affected much.
c. Ayone taken fixed interest loan will be benefitted. After inflation, he will pay lower real interest on loan although nominal interest is fixed.
d. Retired person getting pension will not be affected, if his pension is automatically revised with rise in cost of living index
Answer: Statement (a) is correct.
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Q-32.
When a person searches for a job, he has to remain unemployed for a short period until he gets an appropriate job. This type of unemployment is known as frictional unemployment.
Thus option (b) is correct.
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Q.33: Expansion of business cycle is a short run fluctuation in output. It will increase till boom or uptrend prevails in the economy. It will be followed by downtrend causing recession. Growth in the economy on the other hand is a long term trend. It causes increase in investment. So GDP in real sense moves up.
Thus option (b) is correct.
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Q.34: Money is not economic resource. It is a commonly acceptable medium of exchange. It is used to overcome the limitations of barter exchage system. Now any trasactions are carried out with money.
Answer: Thus option (a) is correct.
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Q.35: Income of an ecoomy is the total amount received by households by selling factors to business. Business takes these factors against money and use them for production. Thus total amount received from factors sale is income of the economy. Rent is received from land, wages for labor, interest for capital and normal profit for organization. Thus sum of these four constitutes total income of the economy.
Hence, statement (a) is correct.
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