Macroeconomic Indicators Flashcards

Which component is NOT included in the expenditure approach to measuring GDP?

Answer: Government transfer payments

Transfer payments (e.g., Social Security) are not payments for current production and are excluded from GDP expenditure calculations.

A country's terms of trade improve when:

Answer: Export prices rise faster than import prices

Terms of trade = export price index / import price index; an increase means each unit of exports buys more imports.

In measuring inflation, hedonic quality adjustments are intended to correct for:

Answer: Quality improvements embedded in price changes

Hedonic adjustment isolates the pure price change from any change in product quality so that better products don't artificially inflate the CPI.

Which measure of money supply includes savings deposits, small time deposits, and retail money market funds?

Answer: M2

M2 adds less liquid assets—savings accounts, small CDs, and retail money market funds—to the narrower M1 definition.

Seasonal adjustment of economic data is performed primarily to:

Answer: Isolate the underlying trend by removing predictable calendar patterns

Seasonal adjustment strips out recurring calendar-driven fluctuations so analysts can identify genuine cyclical or trend changes.

Which scenario most accurately reflects a 'jobless recovery'?

Answer: GDP grows but unemployment remains elevated or falls slowly

A jobless recovery occurs when output rebounds but firms achieve higher productivity through existing workers rather than new hires, leaving unemployment high.

The balance of payments must always sum to zero because:

Answer: Every transaction is recorded as both a debit and a credit under double-entry bookkeeping

Double-entry accounting ensures that for every payment outflow there is a corresponding inflow, making the overall balance of payments identically zero.