IGCSE Economics Paper-2: Specimen Questions with Answers 27 - 28 of 100

Passage

In developing countries, inflation is not purely a monetary phenomenon. Factors typically related to fiscal imbalances, driving higher money growth and exchange rate depreciation, dominate the inflation process in developing countries.

Question 27 (1 of 5 Based on Passage)

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How is inflation measured?

Explanation

For measuring inflation in a country such as U. S. , one must observe prices across the country. The change in prices seen in the local store is a very little contribution of what goes into the overall inflation in the economy. That is why sometimes people feel a disconnect between the actual prices and the inflation numbers in the economy.

  • The consumer price index (CPI) is the most used indicator of inflation, it measures the percentage change in the price of goods and services purchased or consumed by households of the members.
  • Like in Australia, the CPI is measured by the Australian Bureau of Statistics (ABS) and it is published once in a quarter. To calculate the CPI, the Australian Bureau of Statistics records the prices for different items, which are clubbed into various categories (or expenditure classes) . In every quarter, the price changes of each item are recorded in comparison with the previous quarter and the aggregate value is considered for the whole CPI basket of goods and services.

Question 28 (2 of 5 Based on Passage)

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Explain the reasons for unemployment.

Explanation

Employment is due to various reasons for both demand and supply side i.e.. employer and worker. Demand-side unemployment may be due to high rate of interest, recession, financial crisis. Whereas, the supply side unemployment is frictional or structural.

The Following Are the Reason for Unemployment

  • Increase in population causes higher unemployment rates because the number of people who are in search for a job increases. So, it becomes difficult to arrange jobs such huge numbers of workers.
  • Advancement of technology often leads to the unemployment of the low skilled or unskilled workers in various industries. New technology increases the speed and quality of production but it also increases the number of jobless people.
  • Lack of education or skills is a major reason for unemployment. It happens when the qualifications of a person do not match with job responsibilities.
  • Unemployment can be due to the rising cost. It is hard for the companies to pay salary to the employees or even the minimum wage when cost is high.

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