Unit 2: Economic Indicators & Business Cycle
Macro · Unit 2 · Paper 3

Economic Indicators & Business Cycle unit test

A test on this unit alone, marked as a percentage and a letter grade — for the test your class is actually sitting, rather than for May. Answer everything, then submit once: seeing the answer to question 3 before attempting question 4 makes the final percentage meaningless.

Paper 1Paper 2Paper 3
Each paper is built from this unit’s 55 terms and is the same for everyone, so a teacher can assign “Unit 2, Paper 3” and every student sits the identical test. Multiple choice is marked objectively; the written sections you mark yourself against the model answer and rubric.
Suggested time 34 min 31 points0/17 attempted
1

GDP deflator

2

Why output can exceed potential

3

Identifying the base year from a table

4

Unemployment as a lagging indicator

5

Real GDP

6

Biases in the CPI

7

Structural unemployment

8

Recessionary gap

9

Why only final goods count

10

Inflation

11

Who gains and loses from unexpected inflation

12

Labor force participation rate

Short answer 1. Define or explain: Discouraged worker

3 pts

Short answer 2. Define or explain: Cost-push inflation

3 pts

Short answer 3. Define or explain: Inflationary gap

3 pts

Short answer 4. Define or explain: Rule of 70

3 pts

Free response

7 pts

An economy has an adult population of 400,000, of whom 220,000 are employed and 20,000 are actively seeking work. A further 30,000 have stopped searching after several months without success. Nominal GDP is $900 billion and the GDP deflator is 125, with 2020 as the base year. (a) Calculate the unemployment rate and the labor force participation rate. Show your work. (b) Calculate real GDP. (c) The following year nominal GDP rises to $960 billion and the deflator rises to 128. Calculate real GDP for that year and the real growth rate. (d) An economist argues that this economy's official unemployment rate understates labor-market weakness. Using the data given, explain the basis for that argument and calculate the rate that would result if discouraged workers were counted as unemployed.

Calculate the unemployment rate and the labor force participation rate.

Calculate real GDP for the first year.

Calculate real GDP and the real growth rate for the second year.

Explain why the official rate understates weakness and calculate the alternative rate including discouraged workers.