Unit 7: Measuring the Macroeconomy
How economists put one number on how big an economy is, how fast prices are rising, and how many people are out of work.
12 topics · 36 questions
Each topic is a path, not a menu: work down it in order and every question builds on the one above. Click any of them to watch the answer draw itself.
What GDP Measures and What It Leaves Out
- How it worksHow does GDP count only the final goods and services produced within a country's borders in a year?
- Common mistakeWhy doesn't GDP count a used car sale or a stock trade from a previous year?
- Going furtherWhat happens to GDP when a parent leaves a paid job to raise a child at home full time?
Your turn1 of 2
Why do economists add up every hamburger, haircut, and house built in a year into one giant number?Calculating GDP: The Expenditure Approach
- How it worksHow does the expenditure approach add consumption, investment, government spending, and net exports into GDP?
- Worked exampleFind GDP when consumption is 12 trillion, investment is 4 trillion, government spending is 4 trillion, exports are 2 trillion, and imports are 3 trillion dollars.
- Common mistakeWhy doesn't investment in the GDP formula mean buying stocks and bonds?
Your turn1 of 2
In a country, consumption is 13 trillion dollars, investment is 5 trillion, government spending is 6 trillion, exports are 2 trillion, and imports are 1 trillion. What is GDP using the expenditure approach?Real GDP Versus Nominal GDP
- How it worksHow does real GDP strip out the effect of rising prices that nominal GDP leaves in?
- Common mistakeWhy isn't a rising nominal GDP always proof that an economy is actually growing?
- Going furtherWhat happens to the gap between real and nominal GDP during a period of very high inflation?
Your turn1 of 2
Why can an economy's measured GDP rise from one year to the next even though it actually produced less?Using a GDP Deflator to Find Real GDP
- How it worksHow does dividing nominal GDP by the GDP deflator and multiplying by 100 recover real GDP?
- Worked exampleFind real GDP when nominal GDP is 25 trillion dollars and the GDP deflator is 125.
- Common mistakeWhy isn't the GDP deflator exactly the same measure as the Consumer Price Index?
Your turn1 of 2
Nominal GDP is 29 trillion dollars, and the GDP deflator is 132. What is real GDP?GDP Per Capita and Living Standards
- How it worksHow does dividing GDP by population turn a country's total output into a per-person living-standard measure?
- Worked exampleFind GDP per capita for a country with 20 trillion dollars of GDP and 320 million people.
- Common mistakeWhy doesn't a high GDP per capita guarantee that income is spread evenly across a population?
Your turn1 of 2
A country has 24 trillion dollars of GDP and 347 million people. What is GDP per capita?What the Consumer Price Index Measures
- How it worksHow does the Consumer Price Index track the cost of a fixed market basket of goods over time?
- Common mistakeWhy doesn't a rising CPI mean literally every single price in the economy rose by the same amount?
- Going furtherWhat happens to the CPI's accuracy once consumers substitute away from goods that get more expensive?
Your turn1 of 2
Why do economists track the price of a fixed basket of groceries, rent, and gas instead of just one product?Calculating an Inflation Rate From the CPI
- How it worksHow does comparing the CPI in two different years produce a single inflation rate?
- Worked exampleFind the inflation rate when the CPI rises from 240 to 252 over one year.
- Common mistakeWhy doesn't a falling inflation rate mean that prices themselves are falling?
Your turn1 of 2
The CPI rises from 228 to 268 over one year. What is the inflation rate for that year?Demand-Pull and Cost-Push Inflation
- How it worksHow does demand-pull inflation from too much spending differ from cost-push inflation from rising production costs?
- Common mistakeWhy isn't all inflation across the economy caused by the same single thing?
- Going furtherWhat happens to output and prices together when a cost-push shock like an oil crisis hits the economy?
Your turn1 of 2
Why can inflation show up both when shoppers are spending too freely and when a war cuts off the oil supply?Who Is Counted as Unemployed
- How it worksHow does the labor force only include people who are working or actively looking for work?
- Common mistakeWhy isn't everyone without a job automatically counted as unemployed?
- Going furtherWhat happens to the measured unemployment rate once discouraged workers stop looking for jobs entirely?
Your turn1 of 2
Why doesn't a retired grandparent or a full-time college student count as unemployed in the official statistics?Calculating the Unemployment Rate
- How it worksHow does dividing the number of unemployed people by the total labor force produce the unemployment rate?
- Worked exampleFind the unemployment rate when 8 million people are unemployed and the labor force totals 160 million.
- Common mistakeWhy isn't the unemployment rate the same thing as the share of the total population without a job?
Your turn1 of 2
A country has 12 million people unemployed and a labor force totaling 172 million. What is the unemployment rate?Frictional, Structural, and Cyclical Unemployment
- How it worksHow do frictional, structural, and cyclical unemployment each come from a different underlying cause?
- Common mistakeWhy doesn't zero percent unemployment count as the healthy target for an economy?
- Going furtherWhat happens to structural unemployment in a town after its main factory closes for good?
Your turn1 of 2
Why is a barista between jobs counted the same official way as a coal miner whose entire industry disappeared?The Business Cycle
- How it worksHow do expansion, peak, recession, and trough repeat as the four phases of the business cycle?
- Common mistakeWhy isn't a recession the same thing as a depression?
- Ties togetherHow do the unemployment rate and the CPI's inflation rate both swing as the economy moves from peak to trough?
Your turn1 of 2
Why does an economy that's been growing for years suddenly slide into a recession seemingly overnight?