12 Questions
Why has GDP been criticized as a measure of well-being?
It fails to take into account the distribution of income.
What does the official unemployment rate fail to consider?
Underemployed and discouraged workers.
What is excluded from the official unemployment rate calculation?
Jobs created but not in the underground economy.
Which of the following is true about per capita GDP?
It is unaffected by changes in the population size.
Which of the following best explains why the long-run aggregate supply curve corresponds to the production possibilities curve?
Both curves illustrate the maximum sustainable capacity
What happens when there is a decrease in labor productivity in an economy?
Shift the aggregate demand curve to the left
What does the natural rate of unemployment represent?
The unemployment rate when all workers seeking employment have taken jobs
If an economy has zero unemployment, what type of unemployment is present?
Only structural and cyclical unemployment
What is the formula to calculate the unemployment rate?
Number of people not working divided by the population
In the given scenario, what is the potential output of the economy?
$2,600,000
What is the impact of increasing government spending by $33,333 according to the Keynesian economist?
Increase in government spending by $100,000
What will most likely result if wages in an economy rise faster than workers’ productivity in the short run?
An increase in firms’ profit
Study Notes
Limitations of GDP and Unemployment Rate
- GDP has been criticized as a measure of well-being because it only measures economic activity, not overall well-being or happiness.
- The official unemployment rate fails to consider discouraged workers, underemployed workers, and those working part-time for economic reasons.
Unemployment Rate Calculation
- The official unemployment rate calculation excludes discouraged workers, underemployed workers, and those working part-time for economic reasons.
Per Capita GDP
- Per capita GDP is not a perfect measure of standard of living, as it does not account for income inequality within a country.
Long-Run Aggregate Supply Curve
- The long-run aggregate supply curve corresponds to the production possibilities curve because it represents the maximum potential output of an economy.
Impact of Labor Productivity
- A decrease in labor productivity in an economy leads to a decrease in the production possibilities curve, shifting it to the left.
Natural Rate of Unemployment
- The natural rate of unemployment represents the rate of unemployment that exists when the labor market is in equilibrium, and it includes frictional and structural unemployment.
Types of Unemployment
- If an economy has zero unemployment, it means that there is full employment, and the only type of unemployment present is frictional unemployment.
Unemployment Rate Formula
- The formula to calculate the unemployment rate is: Unemployment Rate = (Number of Unemployed / Labor Force) × 100
Potential Output
- The potential output of an economy is the maximum amount of production that an economy can achieve when all resources are fully utilized.
Keynesian Economics
- According to Keynesian economists, increasing government spending by $33,333 will stimulate economic growth and increase aggregate demand.
Wages and Productivity
- If wages in an economy rise faster than workers' productivity in the short run, it will likely lead to higher production costs and higher inflation.
Test your knowledge on GDP, well-being, and the unemployment rate with this multiple-choice quiz. Questions cover topics such as the criticisms of GDP as a measure of well-being and the official unemployment rate.
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