Question

You are six months from graduating college and begin to think about your future. Knowing that you’ll soon be searching for a job increases your interest in the health of the economy. This is because jobs for students with your major are highly dependent on economic growth. Categorize the following hypothetical headlines as either good news or bad news.

a. Unemployment rate drops to 5.6% from 6.1%, the third straight drop in the last three months.
b. GDP comes in at $17 trillion this quarter, compared to $16.5 trillion last quarter.
c. Prices, as measured by the CPI, increased by 10% last year and it could be even higher this year.
d. GDP drops by 2% in the 3rd quarter, after growing at 5% in the 2nd quarter.

Answer 1

a. Unemployment rate drops to 5.6% from 6.1%, the third straight drop in the last three months.

GOOD NEWS, a major factor that contributes to a decrease in unemployment is economic growth. Since unemployment is decreasing, you can assume that the economy is growing.

b. GDP comes in at $17 trillion this quarter, compared to $16.5 trillion last quarter.

GOODS NEWS, the economy is growing, therefore, there should be more jobs available.

c. Prices, as measured by the CPI, increased by 10% last year and it could be even higher this year.

BAD NEWS, a high inflation rate generally leads to monetary and fiscal adjustments which will cool down the economy. Even if the economy is still growing, it will soon stop doing so.

d. GDP drops by 2% in the 3rd quarter, after growing at 5% in the 2nd quarter.

BAD NEWS, the economy probably reached its zenith and once it reaches its highest point, the path is only downwards. The economy will probably soon enter a recession (or at least stop growing).