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Calculate real national income and per capita income for two years to determine which year offered better welfare.

Economics

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Answers

3 parts
a

200 MFRS\text{200 MFRS}

c

5.33 MFRS\text{5.33 MFRS}

e

150,000 FRS\text{150,000 FRS}

Step-by-step solution

10 steps

Part a· 3 steps

Determine the real national income for the two years

  1. Use the formula for real national income

    Real National Income=Money National IncomeAverage Price Level×Base Year Price Level\text{Real National Income} = \frac{\text{Money National Income}}{\text{Average Price Level}} \times \text{Base Year Price Level}

    Assuming 2010 is the base year, the base year price level is 100.

  2. Calculate Real National Income for 2010.

    Real NI2010=200 MFRS100×100=200 MFRS\text{Real NI}_{2010} = \frac{200 \text{ MFRS}}{100} \times 100 = 200 \text{ MFRS}

  3. Calculate Real National Income for 2015.

    Real NI2015=250 MFRS125×100=2×100=200 MFRS\text{Real NI}_{2015} = \frac{250 \text{ MFRS}}{125} \times 100 = 2 \times 100 = 200 \text{ MFRS}

    The real national income for 2010 is 200 MFRS\boxed{\text{200 MFRS}} and for 2015 is 200 MFRS\boxed{\text{200 MFRS}}.

Part b· 4 steps

Which year was better in terms of welfare and why?

  1. Calculate Real Per Capita Income (RPCI) for each year.

    RPCI=Real National IncomePopulation\text{RPCI} = \frac{\text{Real National Income}}{\text{Population}}

  2. Calculate RPCI for 2010.

    RPCI2010=200 MFRS15 million≈13.33 MFRS per person\text{RPCI}_{2010} = \frac{200 \text{ MFRS}}{15 \text{ million}} \approx 13.33 \text{ MFRS per person}

  3. Calculate RPCI for 2015.

    RPCI2015=200 MFRS25 million=8 MFRS per person\text{RPCI}_{2015} = \frac{200 \text{ MFRS}}{25 \text{ million}} = 8 \text{ MFRS per person}

  4. Compare the RPCI values.

    Since 13.33 MFRS>8 MFRS13.33 \text{ MFRS} > 8 \text{ MFRS}, the year 2010 was better in terms of welfare. This is because the real per capita income was higher in 2010, indicating that, on average, each person had a greater share of the economy's real output.

Part c

5.33 MFRS\text{5.33 MFRS}

What is the change in per capita income between the two years?

  1. Use the Real Per Capita Income calculated in part b).

    Change in RPCI=RPCI2015−RPCI2010\text{Change in RPCI} = \text{RPCI}_{2015} - \text{RPCI}_{2010} Change in RPCI=8 MFRS−13.33 MFRS\text{Change in RPCI} = 8 \text{ MFRS} - 13.33 \text{ MFRS} Change in RPCI=−5.33 MFRS\text{Change in RPCI} = -5.33 \text{ MFRS}

    The change in per capita income between the two years is a decrease of 5.33 MFRS\boxed{\text{5.33 MFRS}}.

Part d

Differentiate between cost of living and standard of living

  • Cost of living refers to the amount of money required to cover basic expenses such as housing, food, taxes, and healthcare in a particular place and time. It measures the expenses needed to maintain a certain lifestyle.
  • Standard of living refers to the level of wealth, comfort, material goods, and necessities available to a certain socioeconomic class or geographic area. It measures the quality of life or well-being experienced by individuals or a population.

Part e

150,000 FRS\text{150,000 FRS}

If a man earned a monthly wage of 120,000 FRS in 2010 in order to maintain same standard of living in 2015, how much should he have earned

  1. Determine the inflation factor by comparing the average price levels.

    Inflation Factor=Average Price Level2015Average Price Level2010\text{Inflation Factor} = \frac{\text{Average Price Level}_{2015}}{\text{Average Price Level}_{2010}} Inflation Factor=125100=1.25\text{Inflation Factor} = \frac{125}{100} = 1.25

  2. Multiply the 2010 wage by the inflation factor to find the equivalent wage in 2015.

    Required Wage2015=Wage2010×Inflation Factor\text{Required Wage}_{2015} = \text{Wage}_{2010} \times \text{Inflation Factor} Required Wage2015=120,000 FRS×1.25\text{Required Wage}_{2015} = 120,000 \text{ FRS} \times 1.25 Required Wage2015=150,000 FRS\text{Required Wage}_{2015} = 150,000 \text{ FRS}

    To maintain the same standard of living in 2015, he should have earned 150,000 FRS\boxed{\text{150,000 FRS}}.

    3 done, 2 left today. You're making progress.

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