ECONOMICS

ASSIGNMENT
#2

DECEMBER 11

MUHAMMAD ALI KHAWAJA- 16928

MUHAMMAD UMER WAJAHAT- 19018
IBRAHIM ESSA- 18944

1
2
Answers to the given Questions are in alphabetical order down below:

 ANSWERS TO QUESTION 1
PART A)
Using principles of the real interest equation i.e:
Real Interest= Nominal Interest – Inflation
An increase in inflation rate, whether real or expected, will cause the real interest rate to be
lower than projected.

PART B)
Keeping in mind that inflation has risen, the lender suffers from these turn of
events since the amount that he was anticipating in return is now lower in
monetary value. On the contrary, the borrower has benefited since the actual
cost of loan is much cheaper, thanks to rising inflation!

PART C)
Property owners who opted for fixed rate mortgages were aided by inflation.
The clause of a pre-determined standard rate could not be altered due to
increasing inflation, thus putting the owners at an advantage.
Whereas banks who provided the service of lending money, were again at a
disadvantage since the expected return had a diminishing nature due to
inflation being much higher than predicted.

 ANSWERS TO QUESTION 2
PART A)
A construction worker is likely to undergo short term unemployment since the
variability of weather is not a fixed or constant factor i.e it is bound to change in
the near future.

PART B)

3
A manufacturing worker is likely to experience long term unemployment since
there would be almost zero jobs similar to his last one as it is an isolated area
and community with less commercialization and market available.
PART C)
A stagecoach industry worker will experience long term unemployment since his
parent industry is under threat from the railway sector. Additional skills will be
required to secure another job

PART D)
A short order cook will only have a short spell of unemployment since he/she
will find another job relatively quicker at a nearby restaurant.

PART E)
An illiterate welder will be without a job for a long period of time since he can’t
match up with the efficiency level of automated machines. He or she may need
to sharpen up their welding skills and study newer ones or to learn the
operating of the welding machines.

 ANSWER TO QUESTION 3
This transaction of vintage records doesn’t affect the GROSS DOMESTIC
PRODUCT (GDP) since GDP doesn’t include goods and commodities that were
originated or produced in the past. An example is of the buying and selling of
vintage vehicles.

 ANSWER TO QUESTION 4
Expenditure Approach
GDP=C+I+G+(Ex-IM)
=5000+1000+1000=(500-700)
=$6800

4
Income Approach
National Income=5300+900
=$6200
GDP=National Income – Depreciation
=6200+600
=$6800

 ANSWER TO QUESTION 5
Expenditure Approach:
GDP=C+I+G+(Ex-IM)
=5000+1000+1000=(500-700)
=$6800

Income Approach:
National Income=5300+900
=$6200
GDP=National Income – Depreciation
=6200+600
=$6800