The amount by which potential GDP exeeds actual GDP is one measure of the:?

Question

A. economic cost of inflation
B. economic cost of unemployment
C. difference between real and nominal GDP
D. difference between real and nominal income

Answer 1

C

Answer 2

Both are 'indicators' but are easily misused. GDP shows how much money is being made, and that's important, of course. But for the last 30 years or so GDP has been growing but the standard of living hasn't improved much for most people. Bush bragged of fast growth in GDP but (1) much of this was driven by deficit spending and (2) the benefit only went to a few at the top, concentrating wealth more than it ever has been in the US. Employment is a better indicator of standard of living for working people. Obviously the less unemployment the better. But employment is a lagging indicator, meaning that as we come out of a recession, a drop in unemployment is the last sign that the recession is over. Consider also that we deliberately keep unemployment around 5%, and if it drops below that, the Federal Reserve Bank raises interest rates to 'chill down' the economy. This is because the Powers That Be in the US want a certain amount of unemployment to keep wages down. Every other modern, civilized, developed country aims for full employment, but in the US, it's like playing musical chairs with 20 people and 19 jobs. You also mentioned deficits, and that's very important. Anyone could life high off the hog for a while if they don't mind going into massive debt. And it's just too easy for an American president to do that, because he can take credit for boosting the economy, but he knows that when the bill for the debt comes due he will be out of office and it will be some other president's headache. Ironically, the Republicans have been promising to fight for a balanced budget for 30 years now, but the only president who actually cut spending, made government smaller, reduced deficits and got us on track towards a balanced budget was Clinton, a Democrat.

Answer 3

B