Economic Indicators Flashcards
7 cards from real AP practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Economic Indicators flashcards as text
A country's current account balance is MOST directly related to which GDP component?
Answer: Net exports (NX)
The current account is dominated by trade in goods and services, which corresponds to net exports (NX) in the GDP expenditure equation.
Which of the following scenarios illustrates the 'underground economy' problem with GDP measurement?
Answer: A barber paid in cash does not report income
Unreported cash transactions in the shadow economy are missed by GDP statistics, causing GDP to understate total production.
If the economy is operating above its potential output, the output gap is:
Answer: Positive, indicating an inflationary gap
A positive output gap (actual GDP > potential GDP) signals an inflationary gap where demand pressure pushes prices up.
Average weekly hours worked by manufacturing employees is classified as a leading indicator because:
Answer: Firms adjust hours before hiring or laying off workers
Employers typically extend or cut hours before making permanent headcount changes, so this metric anticipates future employment shifts.
Hyperinflation is most damaging to an economy primarily because it:
Answer: Destroys the purchasing power of money and disrupts transactions
Hyperinflation erodes the medium-of-exchange function of money, forcing people into barter and causing severe economic disruption.
Which of the following would shift the Phillips Curve to the right (outward), implying higher inflation at every unemployment rate?
Answer: A negative supply shock such as rising oil prices
A negative supply shock raises production costs, causing stagflation — higher inflation AND higher unemployment — which shifts the Phillips Curve rightward.
Which statement about the Human Development Index (HDI) compared to GDP per capita is most accurate?
Answer: HDI is broader because it also incorporates education and life expectancy
The HDI combines GNI per capita with education (mean and expected schooling years) and health (life expectancy) to give a more comprehensive welfare measure.