Question

In this unit, we introduced many macroeconomic variables that are used to assess how well or how poorly an economy is doing. We introduced GDP, GNP, unemployment rate, employment rate, the labor force, inflation rate, CPI - consumer price index. Which one do you think is the most important, least important, most inaccurate measure, and accurate measure.

Answer 1

There are many macroeconomic indicators, reflecting the state of economy and are used in different context. But, the most important indicator is GDP (real GDP) whose growth rate tells the status of the economy, whether the economy is growing or contracting. The most inaccurate measure is the unemployment rate. It is due to the reason that official unemployment rate does not consider discouraged workers and underutilized workers to be unemployed workers. Hence, it is difficult to judge the most accurate scenario of unemployment or employment in the country. The most accurate measure is GNP, because it adjusts GDP with the depreciation of capital stock in the economy. The least important measure is the labor force, because on its own, it does not explain the unemployment, employment or labor force participation rate. It is to be combined with others to get some relevant information. Accurate measure is inflation rate that reflects the change in price level in the economy. It can be based on CPI or GDP deflator.