Macroeconomic Indicators

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Questions and Answers

What type of unemployment occurs when there is a mismatch between job skills and available jobs?

Frictional unemployment
Cyclical unemployment
Seasonal unemployment
Structural unemployment (correct)

What is the formula used to calculate GDP?

GDP = C - I - G
GDP = C + I + G + (X - M) (correct)
GDP = C + I - G
GDP = C + I + G

What is the effect of high interest rates on borrowing and spending?

Reduces borrowing and spending (correct)
Increases borrowing and reduces spending
Has no effect on borrowing and spending
Encourages borrowing and spending

What is the purpose of contractionary fiscal policy?

To slow down economic growth (A) Signup and view all the answers

What is the effect of inflation on the purchasing power of consumers?

Decreases purchasing power (B) Signup and view all the answers

What is the name of the index used to measure the inflation rate?

Consumer Price Index (CPI) (C) Signup and view all the answers

What is the primary consequence of a high inflation rate on businesses and investors?

Uncertainty and difficulty in making investment decisions (C) Signup and view all the answers

What is the primary effect of a low unemployment rate on the economy?

Increased consumer spending and economic growth (A) Signup and view all the answers

What is the primary factor that influences the interest rate in an economy?

Monetary policy decisions of central banks (A) Signup and view all the answers

What is the primary goal of expansionary fiscal policy?

To reduce the unemployment rate (A) Signup and view all the answers

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 (A) Signup and view all the answers

What is the primary component of the GDP Deflator?

Price level of all goods and services in the economy (C) Signup and view all the answers

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. (C) Signup and view all the answers

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. (C) Signup and view all the answers

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. (D) Signup and view all the answers

A protectionist policy is characterized by?

Limiting imports and promoting exports. (C) Signup and view all the answers

A free trade policy is characterized by?

Increasing competition and promoting innovation. (C) Signup and view all the answers

What is the primary goal of a protectionist policy?

To protect domestic jobs and industries. (D) Signup and view all the answers

What is the characteristic that distinguishes a recession from an expansion?

Increased unemployment (A) Signup and view all the answers

What marks the transition from an expansion to a recession?

Peak (A) Signup and view all the answers

What type of unemployment is directly related to the business cycle?

Cyclical unemployment (C) Signup and view all the answers

What is the lowest point of the business cycle?

Trough (D) Signup and view all the answers

Which type of unemployment occurs when workers are transitioning between jobs or entering the labor market?

Frictional unemployment (C) Signup and view all the answers

What is the primary characteristic of a peak in the business cycle?

Maximum economic growth (B) Signup and view all the answers

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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

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