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29 Cards in this Set

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  • Back

What are the components of GDP?

C + I + G + ( X - M )

What are each of the categories in C + I + G + ( X - M )?

1. Consumption

2. Investment

3. Government Spending

4. Exports - Imports

What is price index?

A normalized average of price for goods or services

Real GDP

Expressed in a reference year

Nominal GDP

Expressed in current prices

Rule of 72

72 divided by growth rate of X


2 consecutive quarters of negative GDP (6 months)

Types of Unemployment?

1. Frictional

2. Structural


Frictional Unemployment

Searching,but just haven’t found a job yet. Willfind a job.

Structural Unemployment

Job skills are not marketable. Must retrain to find a job.

Cyclical Unemployment

Job lost due to macroeconomic conditions. Must wait until economy recovers.

What is the natural rate of unemployment?

Sum of frictional and structural unemployment

What is full employment?

There is zero cyclical unemployment but still structural and frictional.

Unemployment rate =

Number of "unemployed" as a share of the labor force

Labor Force =

Employed + Unemployed

Difference between unemployed and discouraged workers?

Unemployed are currently looking for work

Aggregate Demand

therelationship between the price level and the quantity of RGDP that consumers,businesses, government, and foreigners want to purchase.

Real Wealth Effect

asprice levels rise, the purchasing power of your assets (savings) falls, andthis will cause people to buy less.

Interest Rate Effect

as price levels rise and the amount of money inthe economy stays constant, people scramble for the existing money (they needmore to buy the same stuff). This pushesup interest rates. As interest ratesrise, people choose to buy less.

Foreignexchange (international trade) effect

as prices rise in the US (but not in Europe),people everywhere buy less American goods (and more European goods).

Short Run Aggregate Supply

i. Businesses/supplierswill try to sell more as the price level rises. Suppliers will try to sell less if prices fall.

Long Run Aggregate Supply

thequantity we can produce given our resources (prices do not matter in thelong-run).

What shifts Aggregate Demand?


What shifts short run aggregate supply?

Changes to input prices

What shifts long run aggregate supply?

Actual changes to resources. A shift in LRAS will also shift SRAS

Recession on a graph:

Quantity is less than LRAS

Bubble on a graph:

Quantity is more than LRAS

How to fix a recession:

1. Not do anything and SRAS will eventually fix itself

2. Changes in CIG will increase AD to equilibrium

How to fix a bubble:

SRAS will shift back to equilibrium.