econ quiz economic indicators

What’s an economic indicator?

A statistic that shows the overall health of the economy (ex: GDP, unemployment rate, inflation).

What are the three goals for the U.S. economy?

Economic growth, stable prices, low unemployment.

What is Gross Domestic Product?

The total value of all final goods and services produced within a country in one year.

What does GDP per capita tell us? What does it NOT tell us?

It tells us average income per person and standard of living; it does NOT show income distribution or quality of life.

What is an intermediate good? Why doesn’t it count?

A good used to make a final good (ex: tire for a car); not counted to avoid double-counting.

What are three examples of transfer payments?

Social Security, unemployment benefits, welfare payments.

Why are transfer payments not counted in GDP?

Because they are not payments for goods or services—nothing is produced.

What’s an “inventory”? When is it counted?

Unsold goods held by businesses; counted when produced, not when sold.

What do economists mean by “home production”?

Goods

What do economists mean by “underground production”?

Hidden or illegal economic activity (ex: cash jobs, black market); not counted in GDP.

Consumption

Household spending on goods and services (ex: food, clothes, rent).

Investment

Business spending on tools, machines, new buildings; also includes new home construction.

Government spending

Federal, state, local spending on goods

Net exports

Exports minus imports.

During a contraction, GDP is .

Decreasing.

During an expansion, GDP is .

Increasing.

What’s a recession? What can cause a recession?

A 6-month (2 quarter) period of declining GDP; caused by high interest rates, decreased spending, economic shocks.

What caused the 2008 recession?

Housing market collapse, risky mortgage lending, bank failures.

Which type was the 2020 recession?

V-shaped recession.

What’s inflation?

A general rise in prices over time.

The ideal inflation rate in the United States is .

About 2%.

How is the average price level (APL) calculated?

Using the Consumer Price Index (CPI).

Your purchasing power refers to

How much your money can buy.

Who calculates the inflation rate?

The Bureau of Labor Statistics (BLS).

What is the Consumer Price Index (CPI)?

A measure of the price of a “market basket” of goods and services.

What’s better when there is high inflation for borrowers—fixed or variable interest rates?

Fixed interest rates.

How does inflation affect your savings?

It decreases the value of your saved money.

What is deflation?

A general fall in prices.

Why is deflation dangerous for an economy?

People wait to buy things → spending drops → unemployment rises → recession worsens.

What is hyperinflation?

Extremely rapid inflation (prices rise uncontrollably).

What causes cost-push inflation?

Rising production costs (ex: wages, raw materials).

What causes demand-pull inflation?

Too much demand chasing too few goods.

What is greedflation?

When companies raise prices more than necessary to increase profits.

What is the labor force?

People 16+ who are working or actively looking for work.

How is the unemployment rate calculated?

(# unemployed ÷ labor force) × 100.

What is the natural rate of unemployment and how does it differ?

Normal unemployment (frictional + structural); does not include recession-based unemployment.

What does it mean to be “unemployed”?

Not working but actively seeking work.

What does it mean to be “underemployed”?

Working a job below your skill level or fewer hours than wanted.

What’s a discouraged worker?

Someone who gave up looking for work but wants a job (not counted in labor force).

Frictional unemployment

Temporary unemployment while between jobs or entering workforce.

Structural unemployment

Unemployment from changes in the economy

Cyclical unemployment

Unemployment caused by economic downturns or recessions.

Seasonal unemployment

Jobs that only occur during certain seasons (ex: lifeguards, holiday retail).