GDP & Growth
What does GDP stand for?
Gross Domestic Product
What is inflation?
The general rise in prices over time.
What does the unemployment rate measure?
The percentage of people in the labor force who are looking for work but can’t find a job.
Who sets the federal interest rate in the U.S.?
The Federal Reserve
GDP is rising, unemployment is low, and inflation is stable. What phase is the economy in?
Expansion
What does GDP measure in an economy?
The total value of all goods produced in a country over a period of time.
What index is most commonly used to measure inflation?
Consumer Price Index (CPI)
What type of unemployment happens during a recession?
Cyclical unemployment
If the Fed raises interest rates, what is it trying to do?
Reduce inflation / slow the economy
GDP is falling and unemployment is rising. What’s likely happening?
A recession
Is GDP increasing or decreasing in an economic recession?
Decreasing
If inflation is rising faster than wages, what happens to purchasing power?
It decreases.
What is the natural rate of unemployment in a healthy economy (ballpark)?
Around 4%–5%
What happens to borrowing and spending when interest rates go up?
They typically go down.
Inflation is over 7%, and GDP growth is very high. What problem might this cause?
Overheating / High inflation risk
What's the difference between nominal and real GDP?
Real GDP is adjusted for inflation; nominal GDP is not.
What is considered a healthy inflation rate by the Federal Reserve?
Around 2%
What’s the difference between structural and frictional unemployment?
Structural = job mismatch; Frictional = short-term, between jobs.
If interest rates are very low, what effect might that have on the economy?
It can stimulate borrowing, investing, and economic growth.
GDP growth = 0%, Unemployment = 8%, Inflation = 1%. What does this suggest?
A stagnant or recessionary economy
If GDP grew 5% this year, what does that say about the economy?
It’s growing/expanding.
Name one negative effect of high inflation.
reduced purchasing power, uncertainty in the economy, decreased savings value.
If unemployment is 8%, what does that suggest about the economy?
It may be in a recession or recovering slowly.
Why might the Fed lower interest rates during a recession?
To encourage borrowing and spending to stimulate the economy.
GDP = +4%, Unemployment = 3%, Inflation = 6%. Diagnose the economy.
It's overheating (too much growth leading to high inflation)