24 Questions
What type of unemployment occurs when there is a mismatch between job skills and available jobs?
Structural unemployment
What is the formula used to calculate GDP?
GDP = C + I + G + (X - M)
What is the effect of high interest rates on borrowing and spending?
Reduces borrowing and spending
What is the purpose of contractionary fiscal policy?
To slow down economic growth
What is the effect of inflation on the purchasing power of consumers?
Decreases purchasing power
What is the name of the index used to measure the inflation rate?
Consumer Price Index (CPI)
What is the primary consequence of a high inflation rate on businesses and investors?
Uncertainty and difficulty in making investment decisions
What is the primary effect of a low unemployment rate on the economy?
Increased consumer spending and economic growth
What is the primary factor that influences the interest rate in an economy?
Monetary policy decisions of central banks
What is the primary goal of expansionary fiscal policy?
To reduce the unemployment rate
What is the primary difference between the nominal interest rate and the real interest rate?
The nominal interest rate is before inflation, while the real interest rate is after inflation
What is the primary component of the GDP Deflator?
Price level of all goods and services in the economy
A government imposes an absolute quota on the import of a specific good. What is the primary effect of this policy?
It reduces the quantity of the good available for domestic consumption.
A country imposes a tariff-rate quota on the import of a specific good. What is the primary effect of this policy?
It increases the price of the good for domestic consumers.
A government imposes an embargo on trade with a specific country. What is the primary purpose of this policy?
To punish the country for its actions or policies.
A protectionist policy is characterized by?
Limiting imports and promoting exports.
A free trade policy is characterized by?
Increasing competition and promoting innovation.
What is the primary goal of a protectionist policy?
To protect domestic jobs and industries.
What is the characteristic that distinguishes a recession from an expansion?
Increased unemployment
What marks the transition from an expansion to a recession?
Peak
What type of unemployment is directly related to the business cycle?
Cyclical unemployment
What is the lowest point of the business cycle?
Trough
Which type of unemployment occurs when workers are transitioning between jobs or entering the labor market?
Frictional unemployment
What is the primary characteristic of a peak in the business cycle?
Maximum economic growth
Study Notes
Macroeconomic Indicators
Unemployment Rate
- Defined as the percentage of the labor force that is currently unemployed and actively seeking employment
- Calculated as the number of unemployed individuals divided by the labor force, multiplied by 100
- Types of unemployment:
- Frictional unemployment: temporary unemployment between jobs
- Structural unemployment: mismatch between job skills and available jobs
- Cyclical unemployment: unemployment due to economic downturns
- Low unemployment rates generally indicate a strong economy
Gross Domestic Product (GDP)
- Defined as the total value of all final goods and services produced within a country's borders over a specific time period
- Calculated using the following formula: GDP = C + I + G + (X - M)
- C: consumer spending
- I: investment spending
- G: government spending
- X: exports
- M: imports
- GDP is a broad indicator of economic growth and development
Inflation Rate
- Defined as the rate of change in the general price level of goods and services in an economy over time
- Measured using the Consumer Price Index (CPI) or the GDP Deflator
- Causes of inflation:
- Demand-pull inflation: excess demand for goods and services
- Cost-push inflation: increase in production costs
- Monetary policy: increase in money supply
- Effects of inflation:
- Reduces purchasing power
- Uncertainty for businesses and individuals
- Inequality: benefits some, hurts others
Interest Rate
- Defined as the percentage rate at which borrowers pay interest on loans and savers receive interest on deposits
- Set by central banks to regulate the money supply and inflation
- Effects of interest rates:
- High interest rates:
- Reduce borrowing and spending
- Increase savings
- Strengthen currency
- Low interest rates:
- Encourage borrowing and spending
- Reduce savings
- Weaken currency
- High interest rates:
Fiscal Policy
- Defined as the use of government spending and taxation to influence the overall level of economic activity
- Expansionary fiscal policy:
- Increases government spending
- Cuts taxes
- Stimulates economic growth during recessions
- Contractionary fiscal policy:
- Reduces government spending
- Increases taxes
- Slows down economic growth during booms
- Fiscal policy tools:
- Government expenditure
- Taxation
- Transfer payments
This quiz covers key macroeconomic indicators, including the unemployment rate, GDP, inflation rate, and interest rate. It also explains fiscal policy and its tools. Test your understanding of these important economic concepts.
Make Your Own Quizzes and Flashcards
Convert your notes into interactive study material.
Get started for free
