APMacro: Economic Indicators Review


  • Gross Domestic Product (GDP) is the measure of the total market value of all final goods and services produced by the economy in a given year.
  • The expenditures approach to GDP sums the total spending on final goods and services: GDP = C + I + G + X
  • Nominal GDP is output valued at current prices. Real GDP is output valued at constant base-year prices.
  • GDP price index compares the price (market value) of all the goods and services included in a give year to the price of the same market basket in a base year.
  • Nominal GDP can be transformed into real GDP by dividing the nominal GDP by the price index expressed in hundredths.
  • Rule of 70 tells us the number of years it will take for some measure to double given its annual percentage increase by dividing that percentage increase into the number 70.
  • The unemployment rate is the number of unemployed divided by the labor force expressed in hundredths.
  • According to Okun’s law, for each 1 percentage point of unemployment above the natural rate, the economy suffers a 2 percent decline in real GDP below its potential GDP. 
  • Consumer Price Index (CPI) measured in hundredths by dividing price of market basket in a particular year by the same market basket in a base year.
  • The rate of inflation measured in hundredths is found by comparing a specific year’s CPI with the previous year’s CPI.

1) Chapter 10 Questions pp.203-204 #4, 5, 6, 7



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