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33 Cards in this Set

  • Front
  • Back
Macroeconomics focuses on
1. Macroeconomics Problems
2. Macroeconomics Theories
3. Macroeconomics Policies
4. Different Views On How the Economy Works
Macroeconomic Problems
1. High inflation rate
2. High unemployment rate
3. High interest rates
4. Low economic growth
Three Macroeconomic Organizational Categories
1. P-Q category
2. Self-regulating-Economic Instability category
3. Effective-Ineffective category
Three Macroeconomic Organizational Categories

1. P-Q category
the relationship between price level (P) and the real GDP (Q).
Three Macroeconomic Organizational Categories

2. Self-Regulating-Economic Instability category
how well, or badly, the economy performs when left to it's own mechanisms.
Three Macroeconomic Organizational Categories

3. Effective-Ineffective category
the effectiveness or ineffectiveness of fiscal policy and monetary policy.
Real GDP
the value of the entire output produced annually within a country's borders, adjusted for price changes.
Fiscal Policy
changes in government expenditures and/or changes in taxes to achieve particular macroeconomic goals.
Monetary Policy
changes in the money supply, or the rate of growth of the money supply, to achieve particular macroeconomic goals.
Price Level
a weighted average of the prices of all goods and services.
Price Index
a measure of the price level.
Consumer Price Index (CPI)
a widely cited index number for the price level; the weighted average of the prices of specific set of goods and services purchased by a typical household.
Consumer Price Index (CPI):

Base Year
the year chosen as a point of reference or basis of comparison for prices in other years; a benchmark year.

The base year always has a CPI of 100.
Consumer Price Index (CPI):

CPI = (total dollar expenditure on market basket in current year / total dollar expenditure on market basket in base year) x 100
Consumer Price Index (CPI):

equation for percentage change in prices
percentage change in prices = [(CPI later year - CPI earlier) / CPI earlier year] x 100
an increase in the price level.
Nominal Income
the current-dollar amount of a person's income.
Real Income
nominal income adjusted for price changes.
Real Income equation
Real Income = (Nominal Income / CPI) x 100
Today's Salary equation
Salary in today's (current) dollars = Salary earlier year x (CPI current year / CPI earlier year)
For purposes of employment, the United States can be divided into two groups:
1. Those who are a) under 16 years of age; b) in the armed forces; c) institutionalized--in a prison, mental institution, or home for the aged.

2. All others in the population, which is called the civilian non-institutionalized population.
The civilian non-institutionalized population can be divided into two groups:
1. those in the civilian labor force

2. those not in the civilian labor force
Unemployment Rate
the percentage of the civilian force that is unemployed.

Unemployment rate = number of unemployed persons / civilian labor force
Employment Rate
the percentage of civilian non-institutional population that is employed.

Employment rate = number of employed persons/civilian non-institutional population
Labor Force Participation Rate
the percentage of the civilian non-institutional population that is in the civilian labor force.

Labor force participation rate = civilian labor force/civilian non-institutional population.
Reasons For Unemployment
1. Job Loser - fired or laid off

2. Job Leaver - quit

3. Reentrant - hasn't worked for some time and is reentering the labor force

4. New Entrant - never had a job, is looking for a job
Discouraged Worker
an unemployed individual who gives up looking for a new job and is no longer counted as part of the civilian work force and thus not considered unemployed.
Types of Unemployment
1. Frictional Unemployment
2. Structural Unemployment
3. Natural Unemployment
Types of Unemployment

1. Frictional Unemployment
unemployment owing to the natural frictions of the economy, which is changed by changing market conditions and is represented by qualified individuals with transferable skills who change jobs.
Types of Unemployment

2. Structural Unemployment
unemployment due to structural changes in the economy that eliminate some jobs and create other jobs for which the unemployed are unqualified.
Types of Unemployment

3. Natural Unemployment
Unemployment caused by frictional and structural factors in the economy.

Natural unemployment rate = Frictional unemployment rate + Structural unemployment rate.
Full Employment
the condition that exists when the unemployment rate is equal to the natural employment rate.
Cyclical Unemployment
the difference between the unemployment rate and the natural unemployment rate.

Cyclical unemployment rate = unemployment rate - natural unemployment rate.