MACRO: Measurement of Economic Performance Flashcards

Between two years, the CPI rose from 120 to 132. What was the inflation rate over this period?

Answer: 10%

Inflation rate = (132 − 120) / 120 × 100 = 10%.

Which of the following best explains why 'potential GDP' is an important benchmark?

Answer: It represents what the economy can sustainably produce at the natural rate of unemployment

Potential GDP is the long-run sustainable output level when resources are fully employed without generating inflationary pressure.

An economy has 200 million working-age adults. Of these, 160 million are in the labor force and 148 million are employed. What is the unemployment rate?

Answer: 7.5%

Unemployment rate = (unemployed / labor force) × 100 = (12M / 160M) × 100 = 7.5%.

Which of the following is the best example of a transfer payment excluded from the GDP expenditure approach?

Answer: Unemployment benefits paid to jobless workers

Unemployment benefits are transfer payments with no corresponding production, so they do not count in GDP.

During a recession, cyclical unemployment rises from 0% to 4%. If the natural rate of unemployment is 5%, what is the actual unemployment rate?

Answer: 9%

Actual unemployment = natural rate + cyclical unemployment = 5% + 4% = 9%.

Which statement about the relationship between inflation and purchasing power is most accurate?

Answer: Inflation erodes the purchasing power of a fixed nominal income

When prices rise, each dollar buys less; people on fixed incomes (e.g., pensioners) see their real standard of living fall.

Which of the following would be classified as a final good in the GDP calculation?

Answer: A new laptop purchased by a household

A laptop bought by a household is a final consumption good; the others are intermediate inputs used in further production.