4 Reading Key Economic Indicators Free Online FlashCards

What does GDP measure?

GDP measures the market value of final goods and services produced within a country during a period.

What is the expenditure approach formula for GDP?

The expenditure approach is $GDP = C + I + G + (X - M)$, where $C$ is consumer spending, $I$ is investment, $G$ is government purchases and investment, $X$ is exports, and $M$ is imports.

Why does GDP count final goods and services?

GDP counts final goods and services to avoid counting the same output more than once.

How do real and nominal GDP differ?

Real GDP is adjusted for price changes, making it useful for comparing production over time. Nominal GDP uses prices from the period being measured and can rise because of higher output, higher prices, or both.

What are two important limits of GDP as a measure?

GDP does not show how production or income is distributed, and it is not a complete measure of people’s well-being.

How is the official unemployment rate calculated?

The unemployment rate is unemployed people as a share of the labor force: $\text{unemployment rate} = \frac{\text{unemployed}}{\text{labor force}} \times 100$.

How can the unemployment rate fall without fewer people being jobless?

People who stop actively searching are generally counted as not in the labor force. If job seekers leave the labor force, the unemployment rate can fall even if the number without jobs has not improved.

What does the Consumer Price Index track?

The Consumer Price Index (CPI) tracks the average change over time in prices paid by consumers for a representative basket of goods and services.

What does a slowing but positive inflation rate mean for prices?

If inflation slows but remains positive, prices are still rising, just more slowly. A falling inflation rate does not by itself mean prices are falling.

Why can CPI and the GDP price index show different price changes?

CPI focuses on consumer purchases, while the GDP price index reflects prices of domestically produced output. Their measures can differ because they cover different purchases.

What may falling real GDP and rising unemployment together suggest?

Falling real GDP alongside rising unemployment is often consistent with weakening economic activity and fewer job opportunities, though indicators are patterns to investigate, not rules that always hold.

Why are imports subtracted in the GDP expenditure approach?

Imports are subtracted because GDP counts production within the country, regardless of where the buyer is located.