Question

For each of the following statements, decide if the statement is true or false and explain why:

A) If Jane buys a brand new 2016 car in 2017, 2017 GDP does not change.

B) The CPI is a better indicator of the price level than the GDP deflator

C) If workers at a customer service call center in Durham, NC get laid-off because their company has moved the call center to India; this is an example of cyclical unemployment.

D) “Full employment” occurs when every working aged individual in the economy is employed.

Answer 1

A) True
Reason: because the amount of money used to manufacture that car (its value) gets included in 2016 GDP. However, the profit and the economic gains which the car company acquire by selling it in 2017 gets registered in 2017 GDP.
B) False
Reason: GDP deflator is a more reliable measure of price level as it takes into account a whole range of goods and services produced in the country whereas CPI( consumer price index) although is also accurate but takes into consideration only certain goods and services.
C) False
Reason: It is an example of structural unemployment (mismatch between the things firms want from workers and what workers are willing to deliver) because lowering costs being the major reason for offshoring, a company by outsourcing hires in some other country like India an emerging market where the cost of living is low and people are willing to work at lower wage whereas the native workers won't agree to low wages. Hence structural unemployment.
D) False
Reason: Full employment means that people who are willing to work and able to get work at prevailing wages are employed. Full employment does not mean whole work force being employed rather it includes structural unemployment (mismatch between requirements and qualifications) and frictional unemployment (people unemployed as they are in between jobs).