National Evaluation Series (NES) Business Studies Practice Test

Which economic indicator provides a comprehensive measure of economic growth or contraction?

1. Employment rates

2. Consumer Price Index (CPI)

3. Gross Domestic Product (GDP)

4. Interest rates

The correct answer is: Gross Domestic Product (GDP)

Gross Domestic Product (GDP) is the comprehensive measure of economic growth or contraction because it represents the total monetary value of all final goods and services produced within a country's borders over a specific time period, usually annually or quarterly. GDP reflects the overall economic activity and health of a country, making it essential for assessing economic performance. An increase in GDP typically indicates economic growth, suggesting that businesses are producing more goods and services and consumer demand is robust. Conversely, a decline in GDP signals economic contraction, which can occur during recessions when spending decreases. In contrast, employment rates primarily focus on job availability and unemployment levels, offering insights into labor market conditions but not the total value of economic output. The Consumer Price Index (CPI) measures inflation by tracking changes in the price level of a basket of consumer goods and services, reflecting purchasing power rather than overall economic growth. Interest rates influence borrowing, spending, and investment but do not directly indicate the aggregate economic activity like GDP does. Thus, GDP is the most comprehensive indicator for understanding the overall economic health and growth trends of a nation.