Macroeconomics: GDP, Inflation, and Unemployment — High School Economics practice questions

A recent graduate searching for a first job is experiencing:

1. structural unemployment
2. frictional unemployment
3. cyclical unemployment
4. seasonal unemployment

Answer: B — frictional unemployment

B) Correct — It is short-term job search. A) Comes from a skills mismatch. C) Comes from a recession. D) Comes from seasonal work patterns.

GDP per capita is useful because it:

1. measures income inequality
2. counts unpaid work
3. adjusts for inflation
4. adjusts output for population size

Answer: D — adjusts output for population size

D) Correct — It allows fairer comparisons between countries. A) Is measured by the Gini coefficient. B) GDP leaves out unpaid work. C) Is what real GDP does.

Gross domestic product (GDP) is:

1. the market value of final goods and services made in a country in a year
2. the total value of all goods and services sold, including used goods
3. the total income of a country's citizens anywhere in the world
4. the market value of all goods made, including intermediate goods

Answer: A — the market value of final goods and services made in a country in a year

A) Correct — It measures a nation's total output. B) Used goods were counted when first made. C) GDP counts production within the country. D) Counting intermediate goods would double-count.

Real GDP differs from nominal GDP because real GDP:

1. includes used goods
2. counts only government spending
3. is adjusted for inflation
4. is measured in a foreign currency

Answer: C — is adjusted for inflation

C) Correct — It measures output at constant prices. A) Neither includes used goods. B) Both include all spending. D) Both use dollars for the U.S.

The largest part of U.S. GDP is:

1. government spending
2. business investment
3. net exports
4. consumer spending

Answer: D — consumer spending

D) Correct — It is about two-thirds of GDP. A) Is roughly one-sixth. B) Is roughly one-sixth. C) Is negative for the U.S.

A country has 160 million people in its labor force, and 8 million are unemployed. The unemployment rate is:

1. 20%
2. 5%
3. 8%
4. 4.8%

Answer: B — 5%

B) Correct — 8 ÷ 160 = 0.05. A) Divides 160 by 8. C) Uses the number of unemployed as the rate. D) Divides by 168 instead of 160.

Using the expenditure approach, GDP equals:

1. C + I + G + imports
2. wages + profits only
3. C + I + G + NX
4. C + savings + taxes

Answer: C — C + I + G + NX

C) Correct — Consumption + investment + government spending + net exports. A) Imports are subtracted, not added. B) Leaves out other income. D) Is not the GDP formula.

Inflation is:

1. a rise in one product's price
2. a rise in the general price level
3. a fall in unemployment
4. an increase in real GDP

Answer: B — a rise in the general price level

B) Correct — Each dollar buys less. A) Must be across the economy. C) Is a different measure. D) Measures output, not prices.

A factory worker loses a job to automation and lacks skills for available jobs. This is:

1. frictional unemployment
2. structural unemployment
3. cyclical unemployment
4. seasonal unemployment

Answer: B — structural unemployment

B) Correct — Skills don't match the jobs available. A) Is short-term job searching. C) Is caused by a recession. D) Is tied to the time of year.

A sudden spike in oil prices raises costs across the economy. The resulting inflation is:

1. cost-push inflation
2. demand-pull inflation
3. deflation
4. disinflation

Answer: A — cost-push inflation

A) Correct — Higher production costs push prices up. B) Comes from too much spending. C) Is falling prices. D) Is a slower rate of inflation.

What is unemployment?

The portion of the labor force actively seeking but unable to find work. Unemployment rate = unemployed / labor force × 100.

Worked example: A CPI basket costs $250 in the base year and $275 this year. Compute (a) this year's CPI value and (b) the inflation rate from the base year.

Step 1 — CPI formula: CPI = (cost of basket in current year / cost of basket in base year) × 100. Step 2 — Compute current CPI: CPI = (275 / 250) × 100 = 1.10 × 100 = 110. Step 3 — Inflation rate from base year = (CPI_new − CPI_old) / CPI_old × 100. Using base CPI = 100: (110 − 100) / 100 × 100 = 10%. Step 4 — Interpretation: prices have risen 10% relative to the base year. Step 5 — If you wanted the inflation rate over just one year between two consecutive non-base years (say CPI 110 → 113.3), use (113.3 − 110) / 110 × 100 = 3.0%.

What is stagflation?

Simultaneous high inflation and high unemployment with stagnant growth. Famous example: 1970s U.S.

What is hyperinflation?

Extreme inflation, often >50% per month — e.g., Weimar Germany 1923, Zimbabwe 2008, Venezuela 2010s.