GDP/NATIONAL INCOME
Explain the meaning of GDP in macroeconomics
Total value of final goods and services produced in a country in a given period.
Tell us the general idea of inflation in an economy
Prices of goods and services increase over time.
There is a situation where people want jobs but cannot find one. To what situation am i referring?
Unemployment
Government changes spending or taxes to influence economy, and this is a policy which is called(…). Complete the answer.
Fiscal policy
Name the central bank tool used to control money supply
Monetary policy. Central banks mainly use interest rates and money supply controls.
A country reports higher GDP after prices rise but production stays the same. What is happening?
This is nominal GDP increase caused by inflation, not real growth.
If wages rise faster than productivity, what pressure appears in the economy?
Cost-push inflation pressure
A worker quits job to search for a better one. What type of unemployment is this?
Frictional unemployment
Explain what effect is appearing when tax reduction leads to more household consumption.
Disposable income increases, so spending rises. Simply, People have more money left after taxes to buy goods and services.
Interest rates fall, borrowing becomes cheaper. So what happens to investment?
Investment increases since businesses are more willing to borrow money for projects and expansion.
Explain how GDP changes when exports increase but imports remain unchanged
GDP increases because exports add to domestic production while imports are subtracted.
A basket of goods becomes more expensive compared to last year’s base year. What does CPI show here?
Inflation rate based on increased consumer prices
When factories close due to new automation technology, what type of unemployment appears?
Structural unemployment (Workers lose jobs because technology changes the demand for skills)
Extra government spending causes income to rise more than initial amount. Can you name this effect?
Multiplier effect or your answer is correct if you gave it in the form like “One person’s spending becomes another person’s income, creating repeated economic activity”
Higher interest rates reduce borrowing demand. Explain outcome on economy
Consumers and firms spend less because loans become expensive. As a result, aggregate demand(AD) decreases.
After a flood, construction activity increases sharply. GDP also rises. Interpret this situation
Reconstruction spending raises measured GDP even though welfare may not improve.
Savings kept in cash lose value during continuous inflation. Explain the mechanism
Purchasing power of money decreases over time like even if the amount of money stays the same, rising prices reduce what it can buy.
Explain the time wheb long jobless period reduces worker’s future employability.
Skills and experience decline, reducing chances of re-employment, or employers may also prefer workers with recent experience who are younger when compared.
When high government debt builds up over time, what concern arises?
Future tax burden and interest payment pressure(Governments may need higher taxes or more borrowing later)
If money supply increases in short run, what happens to interest rates?
Interest rates decrease because banks tend to have more money available to lend in the economy
Two countries have equal GDP but different living standards. Explain this difference
GDP ignores inequality, population size, and quality of life differences.
Workers expect inflation next year and demand higher wages now. What economic process is forming?
A wage-price inflation spiral where higher wages increase business costs, and firms respond by raising prices again
Economy is near full employment, but wages start rising quickly. What risk happens next?
Inflation pressure due to tight labor market. In other words, businesses may increase prices to cover rising labor costs
In a deep recession, even strong fiscal stimulus fails to increase demand significantly. Why?
Private sector confidence and spending remain very low, or in simple words, people and businesses may continue saving instead of spending during uncertainty.
Even when interest rates are near zero, people still do not spend or invest. Situation name
Liquidity trap (People prefer holding cash because they expect weak economic conditions)