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Principles of Macroeconomics - Assignment Example

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Some of the salary increase is due to inflation. The table above reports the consumer price index and a hypothetical median nominal salary of FC Barcelona for 1988 and 2005.

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Principles of Macroeconomics
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Qatar College of Business and Economics Principles of Macroeconomics (ECON 112) 1st Assignment (Wednesday 4th of November Total Marks 4
Student Name: ID:

1) Fill in the missing values in the following hypothetical table. The working-age population, employment, unemployment, and labor force are measured in thousands. Show your work.
Working-Age Population
201661
Employment
127817
Unemployment
7296
Unemployment Rate
5.4%
Labor Force
135,113
Labor Force Participation Rate
67.0%
Calculation steps:


Working age population = labor force/labor participation rate = 135113 x 100/67 = 201661.19
Consequently the working age population is approximately 201661
Unemployment rate
Unemployment = unemployment rate X labor force = 5.4%*135113 = 7296
Labor force
Labor force = employment + unemployment
Hence employment = labor force – unemployment = 135113 – 7296 = 127817
Table 16-8
Year
Median Salary (FC Barcelona)
CPI (1982-1944 = 100)
1988
$480,000
118
2005
$5,833,334
195
Salaries in major soccer leagues have soared over the last 30 to 40 years. Some of the salary increase is due to inflation. The table above reports the consumer price index and a hypothetical median nominal salary of FC Barcelona for 1988 and 2005.
2) Calculate the real median salary of the FC Barcelona in both 1982-1984 dollars and 2005 dollars. Calculate the percentage increase in the median salary of the FC Barcelona from 1988 to 2005 in both nominal terms and in real terms. Show your work!

Real median salary = nominal median salary/CPI
In 1982-1944 dollars
For 1988 = 480000/118 = $4067.79
For 2005 = $5,833,334/195 = $29914.53
In 2005 dollars
For 1988 = (Nominal Price1988 ) x (CPI2005 / CPI1988) = $480,000 *195/118 = $793220.33
For 2005 = (Nominal Price2005 ) x (CPI2005 / CPI2005) = $5,833,334
Percentage increase
In norminal terms
= ($5,833,334/$480,000)-1 = 1115%
In real terms
$29914.53/$4067.79 – 1 = 635%
Consequently, in nominal terms, median salary has increased by 1115% . However, after the effects of inflation was removed, the real median salary increased by only 635%. Read More
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