These seven questions are original, with invented data. Try each one on paper before opening the answer.
The timed original practice session builder can set a timer for you. The lessons behind each question are listed at the end, and the topic overview is in economic indicators.
Questions 1 to 3: rates and groups
Question 1. A fictional price index is 100 in Year 1, 106 in Year 2 and 109.18 in Year 3. Find the inflation rate for Year 2 and for Year 3, and the change from Year 1 to Year 3.
Answer
Year 2: (106 − 100) ÷ 100 × 100 = 6%.
Year 3: (109.18 − 106) ÷ 106 × 100 = 3.18 ÷ 106 × 100 = 3%.
Year 1 to Year 3: (109.18 − 100) ÷ 100 × 100 = 9.18%. The earlier year in each calculation is the divisor.
Question 2. A fictional district has 1 800 residents of working age. There are 1 080 employed and 120 unemployed.
The rest are outside the labour force. Find the unemployment rate and the participation rate.
Answer
Labour force = 1 080 + 120 = 1 200. Outside the labour force = 1 800 − 1 200 = 600.
Unemployment rate = 120 ÷ 1 200 × 100 = 10%.
Participation rate = 1 200 ÷ 1 800 × 100 = 66.7% (66.67 to two decimal places).
Question 3. Name the type of unemployment in each fictional case.
- (a) A nurse leaves one hospital and spends three weeks looking for another post.
- (b) A printing firm closes after digital methods replace its work, and its workers lack the new skills.
- (c) A recession cuts demand across the economy and firms in every sector reduce staff.
- (d) Tour boat workers are not needed after the holiday season.
Answer
(a) Frictional: a short search between jobs.
(b) Structural: the workers’ skills do not match the jobs now available.
(c) Cyclical: linked to a fall in total demand.
(d) Seasonal: linked to the time of year.
Questions 4 to 5: growth and real values
Question 4. A fictional economy has real output of RM240 billion in Year 1 and RM252 billion in Year 2. Population is 12 million, then 12.12 million. Find the growth of total output and the change in output per person.
Answer
Total growth: (252 − 240) ÷ 240 × 100 = 5%.
Output per person, Year 1: 240 billion ÷ 12 million = RM20 000. Year 2: 252 billion ÷ 12.12 million = RM20 792.08.
Change: 792.08 ÷ 20 000 × 100 = 3.96%, about 4.0%. Population grew by 1%, which reduced the gain per person.
Question 5. A fictional worker earns RM4 000 a month in Year 1 (index 100) and RM4 200 in Year 2 (index 102). Find the nominal change and the real change.
Answer
Nominal change: 200 ÷ 4 000 × 100 = 5%.
Real pay in Year 2: 4 200 ÷ 102 × 100 = RM4 117.65. Real change: 117.65 ÷ 4 000 × 100 = 2.94%, about 2.9%.
Dividing by an index above 100 makes the real value smaller than the nominal value, as it should when prices rose.
Questions 6 to 7: explain and judge
Question 6. A student writes: “Unemployment fell from 8% to 6%, so 2% more people now have jobs.” Correct the statement.
Answer
Two errors. First, the fall is 2 percentage points, not 2% of anything. Second, the rate does not show that more people have jobs. It can fall if unemployed people stop looking and leave the labour force.
A better statement: “The unemployment rate fell by 2 percentage points. Employment figures and the participation rate are needed to say whether more people have jobs.”
Question 7. A fictional country’s nominal output is RM100 billion in Year 1 (index 100) and RM110 billion in Year 2 (index 108). Find the real output in Year 2 and the real growth, then write one sentence comparing it with the nominal growth.
Answer
Real output in Year 2: 110 ÷ 108 × 100 = RM101.85 billion.
Real growth: 1.85 ÷ 100 × 100 = 1.85%, about 1.9%. Nominal growth is (110 − 100) ÷ 100 × 100 = 10%.
Sentence: “Nominal output rose by 10%, but prices rose by 8%, so real output rose by only about 1.9%.”
If you got these wrong
A wrong divisor in Question 1 points to interpreting inflation data. Question 2, 3 and 6 link to distinguishing unemployment concepts. Question 4 links to reading growth indicators, and Questions 5 and 7 to comparing nominal and real changes.
Write each slip in the mistake log and paper-error review, so that a repeated type shows up. For a teacher to go through your working, see online one-to-one Economics tuition.