Macroeconomic Indicators Flashcards
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Read the first 7 Macroeconomic Indicators flashcards as text
Which of the following best describes the output gap?
Answer: The gap between actual GDP and potential GDP
The output gap measures how far actual economic output deviates from the economy's non-inflationary potential.
Okun's Law describes an empirical relationship between:
Answer: Unemployment rate changes and GDP growth
Okun's Law estimates that for every 1 percentage point rise in unemployment above its natural rate, GDP falls roughly 2% below potential.
What does a rising velocity of money (V) imply, holding the money supply constant?
Answer: Nominal GDP must rise
From the quantity theory (MV = PQ), if M is constant and V rises, then the product PQ (nominal GDP) must increase.
Which of the following is a LAGGING economic indicator?
Answer: Commercial and industrial loans outstanding
Commercial and industrial loans outstanding typically peak after the economy has already begun to recover, making it a lagging indicator.
A country runs a current account deficit. According to the national income identity, this implies:
Answer: Investment exceeds national saving
CA = S − I; a current account deficit means domestic investment exceeds national saving, requiring foreign capital inflows to finance the gap.
The natural rate of unemployment is best described as the rate that exists when:
Answer: Cyclical unemployment is zero
The natural rate equals frictional plus structural unemployment; cyclical unemployment is zero when the economy operates at potential.
Which pricing index is used to deflate personal consumption expenditures and is the Federal Reserve's preferred inflation gauge?
Answer: PCE Price Index
The Personal Consumption Expenditures (PCE) Price Index is the Fed's preferred measure because it uses chain-weighting and covers a broader spending basket.