CEA Macroeconomic Indicators 2 — Questions and Answers
Question 1: Which component of GDP measures the value of goods produced but not yet sold?
- Net exports
- Inventory investment (Correct answer)
- Government transfer payments
- Consumer durable spending
Correct answer: Inventory investment
Inventory investment captures changes in unsold goods held by businesses and is part of the investment (I) component of GDP.
Question 2: If nominal GDP grows 6% and the GDP deflator rises 4%, what is the approximate real GDP growth rate?
- 10%
- 2% (Correct answer)
- 4%
- 6%
Correct answer: 2%
Real GDP growth ≈ nominal GDP growth minus inflation, so 6% − 4% = 2%.
Question 3: Which unemployment measure is considered the broadest indicator of labor underutilization in the U.S.?
- U-1
- U-3
- U-5
- U-6 (Correct answer)
Correct answer: U-6
U-6 includes the officially unemployed, marginally attached workers, and those working part-time for economic reasons.
Question 4: A sustained decline in the general price level is best described as:
- Disinflation
- Deflation (Correct answer)
- Stagflation
- Hyperinflation
Correct answer: Deflation
Deflation is a persistent fall in the overall price level, distinct from disinflation which is a slowing of the inflation rate.
Question 5: The current account balance is LEAST likely to include which item?
- Merchandise trade balance
- Services trade balance
- Unilateral transfers
- Foreign direct investment (Correct answer)
Correct answer: Foreign direct investment
Foreign direct investment appears in the capital/financial account, not the current account.
Question 6: Which leading economic indicator typically turns down before a recession begins?
- Average duration of unemployment
- Prime-age labor force participation rate
- Building permits for new private housing (Correct answer)
- Coincident composite index
Correct answer: Building permits for new private housing
Building permits are a leading indicator because construction decisions are made well before economic activity slows.
Question 7: In calculating CPI, the Laspeyres index is used. What is the primary bias this introduces?
- Downward substitution bias
- Upward substitution bias (Correct answer)
- Quality adjustment bias downward
- New-goods bias downward
Correct answer: Upward substitution bias
The Laspeyres (fixed-basket) approach overstates inflation because it ignores consumer substitution toward cheaper goods when prices change.
CEA Macroeconomic Indicators 2
Which component of GDP measures the value of goods produced but not yet sold?