Gross Domestic Product
What does GDP measure?
total value of all goods and products
What is the unemployment rate, and how is it calculated?
the percentage of the labor force that is unemployed; it is calculated by dividing the number of unemployed individuals by the total labor force and multiplying by 100.
What is inflation, and what causes it?
level of prices for goods and services rises, eroding purchasing power; it can be caused by demand-pull or cost-push factors.
What is fiscal policy, and how does it differ from monetary policy?
government spending and taxation decisions to influence the economy, whereas monetary policy involves controlling the money supply and interest rates.
What is monetary policy, and who typically implements it?
a central bank manages the money supply and interest rates, typically implemented by the Federal Reserve in the U.S.
How does an increase in GDP typically affect a country's economic well-being?
a growing economy, higher standard of living
Differentiate between cyclical and structural unemployment.
Cyclical unemployment is caused by economic downturns, while structural unemployment results from mismatches between workers' skills and job requirements.
How is the Consumer Price Index (CPI) used to measure inflation?
change over time in the prices paid by consumers for a basket of goods and services
Describe the two main tools of fiscal policy.
government spending and taxation
Explain the difference between expansionary and contractionary monetary policy.
Expansionary monetary policy aims to increase the money supply and lower interest rates to stimulate economic activity, while contractionary monetary policy seeks to reduce inflation by decreasing the money supply.
Describe the difference between nominal GDP and real GDP.
Nominal GDP = current prices
Real GDP = price adjusted for inflation
What role does the government play in reducing unemployment?
job creation programs, education and training initiatives, and economic stimulus measures.
What are the potential effects of hyperinflation on an economy?
loss of confidence in the currency, economic instability, and severe declines in purchasing power.
How do government spending and taxation influence economic growth?
stimulate economic growth by increasing demand, while taxation can either stimulate or restrain economic activity depending on rates and structures.
How does the Federal Reserve use interest rates as a tool of monetary policy?
uses interest rates as a tool of monetary policy by setting the federal funds rate, influencing borrowing costs throughout the economy.
What are some limitations of using GDP as an economic indicator?
income inequality, environmental degradation, and non-market transactions.
How can high unemployment rates impact the economy?
lead to decreased consumer spending, lower economic output, and increased social issues.
Explain how inflation can benefit borrowers and harm savers.
benefits borrowers because they can repay loans with money that is worth less than when they borrowed it, while it harms savers by eroding the value of their savings.
How do political ideologies shape fiscal policy decisions
influencing priorities for spending, taxation, and the overall role of government in the economy.
Discuss the impact of quantitative easing on the economy.
Quantitative easing involves the central bank purchasing long-term securities to inject liquidity into the economy, aiming to lower interest rates and encourage lending.
Explain how GDP per capita can provide a better understanding of living standards.
providing a per-person measure that offers a clearer picture of living standards and economic well-being.
Discuss the significance of the natural rate of unemployment.
the level of unemployment that exists even in a healthy economy
Discuss the relationship between inflation and interest rates.
as inflation rises, central banks may increase interest rates to control inflation.
Discuss the potential long-term effects of expansionary fiscal policy.
Expansionary fiscal policy can lead to increased debt and potential inflation, while also providing short-term boosts to economic growth.
Analyze the relationship between monetary policy and inflation control.
Monetary policy can control inflation by adjusting interest rates; higher rates can slow down borrowing and spending, while lower rates can stimulate economic activity.