Inflation & Unemployment Worksheet
Inflation Questions:
Consumer Price Index:
Find inflation/deflation rate.
Year 1 = 130 CPI
Year 2 = 120 CPI
Prices
Results of 2003 Survey
Quantity
Expenditure per
Consumed Per
Month (PxQ)
Month
10
30
Hamburgers
Milkshakes
$2.00
$1.00
Hamburgers
Milkshakes
Results of 2004 Survey
Prices
Quantity
Consumed Per
Month
$2.20
10
$1.05
30
Weights
Expenditure per
Month (PxQ)
a) Find the item weights in the year 2003.
b) What is the base year?
c) What is the inflation rate from 2003 to 2004?
Nominal vs. Real Income
A consumer’s income from year 1 to year 2 has increased from $1,100 to $1,200 while CPI rises
from 100 to 109.
a) What is the nominal income for both years?
b) What is the real income for both years?
c) Has the consumer’s real income increased?
GDP Deflator:
(1) Year
(2) Output of
Microchips
(3) Current
Price
2000
2001
2002
1000
2000
2500
$0.20
$0.30
$0.40
Output at
Current Price
(2) x (3)
Output at
(6) GDP
2000 Price (2) Deflator
x (0.20)
[(4)÷(5)]x100
a) What is the reference year?
Nominal GDP vs. Real GDP:
Using this table, find the real GDP for each year.
(1) Year
(2) Nominal GDP
(current $ billions)
(3) GDP Deflator
(1992=100)
1968
1992
2000
$76.30
$698.50
1038.80
23.47
100.00
112.73
(4) Real GDP (1992 $
billions)
[(2)+(3)] x 100
Borrowing and Lending:
Question 1:
Mariposa Vacations borrows $2,000 at 7% per annum from the TD bank.
How much interest does Mariposa Vacations pay using the nominal interest rate?
How much interest does Mariposa Vacations pay using the real interest rate assuming the
inflation rate is 3% that year?
Question 2:
If TD bank wants 5% real interest rate, and they anticipate a 2% inflation rate, then what should
the nominal interest rate be?
If the inflation rate is 4% that year, what real interest rate does TD bank receive? Who is better
off?
If the inflation rate is 1% that year, what real interest rate does TD bank receive? Who is better
off?
Unemployment Questions:
1. In 2004, Canada’s labour force was 14.4782 million, and the labour force
population 26.8954 million, so the participation rate was _______.
2. Canada’s 2004 labour force of 14.4782 million people was composed of 13.9981
million people who were employed and 1.3993 million who were not. The
unemployment rate is _______.
3. Use the information for a hypothetical economy in the table below to find the
following:
a. the labour force
b. the labour force population
c. the official unemployment rate
Unemployed members of the labour force
Total population 15 years of age and over
Participation rate
Workers with full-time jobs
Part-time workers who do not wish to have full-time jobs
Part-time workers who wish to have full-time jobs
Total population less than 15 years of age
2.3 million
58.9 million
64 %
21.4 million
4.2 million
3.5 million
14.6 million
4. Using the information in the table shown in question 3, derive an estimate of this
hypothetical economy’s unemployment rate that includes underemployment.