GDP is supposed to indicate economic health because it is supposed to rise when
1. inflation is low
2. prices is falling
3. wealth is being created
4. Unemployment is falling
5. Unemployment is rising
The correct statements are:
1. Inflation is low: When inflation is low, it means that the general price level of goods and services is relatively stable. This allows businesses and consumers to make informed economic decisions and helps maintain purchasing power. A low inflation rate is generally considered beneficial for economic health, as it indicates economic stability.
3. Wealth is being created: GDP measures the total value of all goods and services produced within a country's borders during a specific time period. When wealth is being created and an economy is growing, it generally indicates a healthy and expanding economy. This can be achieved through factors such as increased production, innovation, investment, and consumption.
4. Unemployment is falling: A decrease in the unemployment rate suggests that more people are finding jobs and contributing to the economy. It signifies an improved labor market and increased productivity. Lower unemployment rates can lead to higher consumer spending, increased tax revenues, and overall economic growth.
The other statements, 2. prices are falling and 5. Unemployment is rising, are not indicative of a healthy economy.
2. Prices are falling: Persistent falling prices, also known as deflation, can be detrimental to the economy. It can lead to reduced consumer spending, as people delay purchases in anticipation of even lower prices, and it can also lead to reduced business profits, wage cuts, and increased levels of debt. Deflation can cause economic stagnation and is generally considered to be negative for economic health.
5. Unemployment is rising: When unemployment is rising, it indicates a weakening job market and limited opportunities for individuals to find work. Higher unemployment rates often coincide with a decrease in consumer spending, decreased tax revenues, and reduced overall economic growth. Therefore, rising unemployment is generally seen as unfavorable for economic health.