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# MacroEcon Formulas

### Formulas used in basic macroeconomics

Question | Answer |
---|---|

GDP formula | Disposable Income + Net Taxes |

Slope of line | Change in vertical distance / change in horizontal distance |

PPF Production Possibilities Frontier | curve represents boundary between inefficient use of resources and unattainable goals |

Bottom left of PPF | Inefficient use of resources |

Top left of PPF | Unattainable goals |

Disposable Income | Gross income - Taxes + transfer payments |

Net Taxes | Taxes - Transfer Payments |

GDP via Expenditures | C + I + G + (X-M)Consumer Spending + Investments + Gov't Spending + (Exports - Imports) |

GDP via Income | W + R + I + PWages + Rents + INTEREST + Profits |

Net Domestic Product | GDP - depreciation |

Real GDP | GDP adjusted for inflation |

Nominal GDP | GDP using values at time of production "just the figures" |

GDP Price Index | Nominal GDP / Real GDP x 100Used to compare GDP in different years |

Rate of Percentage | Current year - Base Year = AnswerAnswer / Current Year = Rate |

Leakage from economy | Savings + Net Taxes + Imports |

Injection into economy | Investments + Gov't Spending + Exports |

Unemployment rate | number of unemployed / labor force |

Labor force | number of people working and looking for work |

Labor force participation rate | number in labor force / total population |

MPC Marginal Propensity to consume | change in consumption / change in incomeHow much more would you consume, given a certain increase in income? |

MPS Martinal Propensity to save | change in saving / change in incomeHow much more would you save, given a certain increase in income? |

Simple Spending Multiplier | 1/MPS = 1/(1-MPC) MPS and MPC will always together equal "1" |

Simple Spending Multiplier is used to | calculate effect of a certain increase in spending |

Simple Money Multiplier | 1/(1/Rate) |

Simple Money Multiplier is used to | calculate effect of a certain change in rate of spending |

Real GDP demanded | Change in GDP x 1/(1-MPC) or-MPC x change in Net Tax x 1/(1-MPC) |

Real GDP demanded formula is used to | calculate effect on GDP of a change in spending or taxation |

Assets | Liabilities + Net Worth |

Equation of Exchange | Money Supply x Velocity = Price Level x Y GDP |

Equation of Exchange is used to | measure how well money is circulating in economy |

Velocity | Price Level x Y GDP / Money SupplyMust get Velocity figure before using Equation of exchange |

Velocity is used to | calculate how many times on average a dollar changes hands in a year |

Total Spending | Money x Velocity |

Total Receipts | Price Level x Y GPD |

Effects of an Increase in Money Supply | Money Supply UpInvestments UpAgg Demand UpGDP UpInterest Rates Down |

Simple Money Multiplier | change in fresh reserves x 1/rate |

To measure purchasing power in a particular year | 100/CPI for example 100/CPI of 208 = .48c A 2009 dollar will buy what you could have bought for .48 in 1984 (or whatever year you're looking at) |