Econ Unit 3: Economic Performance

"The amount in dollars of all final goods and services produced in a country in a year" is a definition of

• Gross Domestic Product

• Gross National Product

• Consumer Price Index

• Internal Revenue Service

True or False: Gross domestic product (GDP) includes products produced by American companies outside of the U.S.

• True

• False

Inflation is an indication of:

• a general increase in all prices of goods and services

• a general decrease in all prices of goods and services

• an increase in a country's budget deficit

• an increase in exports to other countries

Gross Domestic Product (GDP) has a number of uses. Check all the following that apply to GDP:

• It is used to estimate a country's production of goods and services

• It is used to measure a country's economic growth.

• It is used to compare the economies of different countries.

• It is used to compare the quality of life of people in a country.

The Consumer Price Index (CPI) is used to measure:

• the rate of inflation

• a country's economic growth

• interest rates

• unempoyment

What is the Consumer Price Index (CPI)?

• It tracks the changes in prices of a selection of goods and services from year to year

• It is the average cost of all goods and services that are bought in a year

• It is the value of all goods and services produced in a country in one year.

• It tracks the changes in prices of all imports that are sold in a country in one year.

High inflation causes:

• people to spend less money

• interest rates on loans to go up

• people to spend more money

• an increase increase in people taking out loans

In times of deflation, prices start to go down. Is this good or bad for an economy?

• This is good, because things are more affordable so demand will go up.

• This is a good sign that people are saving money instead of going into debt.

• This is bad, because it is a sign that demand is down and the economy is shrinking.

• This is bad, because people are spending too much money.

Inflation happens naturally as an economy grows. The money that people on fixed incomes (like retired people) receive from Social Security and other retirement does not change over time. This decreases their purchasing power. What does the government do to help combat the effects of inflation on people living on fixed incomes?

• pass cost of living adjustments (COLA) for those on Social Security

• lower the retirement taxes

• give them low interest rate loans

• offer more social services