Formulas to Know for Macro Economics:Resources:Key:L= LandN= LaborK= Capitale=EntrepreneurshipReturn on Resources:Key:R=RentW=Wagesi=InterestΠ= ProfitInflation:Key:Π= InflationΠ^o= Expected InflationΠ= Happened InflationNGDP= Nominal Gross Domestic ProfitRGDP=Real Gross Domestic ProfitCPI= Consumer Price IndexFormulas:To measure inflation Y=QPIf Q increases= goodIf P increases= badAnticipated inflationNGDP=RGDP+ Π^oInflation rate= (Current CPI-Last Years CPI)/(Last years CPI) x 100Interest Rates:Key: ir= Interest RatesRir= Real Interest RatesNir= Nominal Interests RatesFormulas:Real interest rates= opportunity cost of $ + risk of default premiumNominal interest rates= real interest rate + inflation premiumEx ante nominal interest rates= real interest rate + Π^oEx post real interest rate= nominal – inflation premiumIncome:Key:Y=IncomeRGDP=IncomeRGDP= Real Gross Domestic Profit (Inflation taken out)AD=IncomeAD= Aggregate DemandFormulas: Y=GDP=AD= C+I+G+ (X-M)See GDP section blow for the other method to calculate RGDP. GDP: Key:C= ConsumersI= SuppliersG= GovernmentX=ExportsM= ImportC+I= Private SectorG= Public SectorX-M= Net ExportsSA= SACPI= Consumer Price IndexR= RentW= Wagesi= InterestΠ= ProfitFormulas:GDP Per Capita= (GDP/Population) x 100Expenditures approach to calculate GDP= Y= C+I+G+(X-M)If X>M; Exporting moreIf X<M; Importing moreIncome/Cost approach to calculate GDP= Y=R+W+i+ Π+ SA’RGDP= (Nominal GDP/CPI) x 100Growth Rate of RGDP= Change in RGDP/time= slope of Business Cycle GraphMoney Supply:Things to know:When the Fed buys bonds, the money supply is getting bigger.When the Fed sells bonds, the money supply is getting smaller. The U.S Treasury sells bonds to the Fed, and this has no effect on the money supply. Fiscal Policy: Key:T= Tax RevenuesG= GovernmentFormulas:Fiscal Policy= Change in G and change in TG=T means a balanced budgetG<T means a surplusG>T means a deficitFiscal Policy Multiplier: Note: This is an example of crowding out*Key:MPS= Marginal Propensity SpendingMPC= Marginal Propensity ConsumptionY= IncomeC= ConsumptionS=SpendingT= TaxesFormulas:MPC= change in Consumption/change in income= change in C/Change in YMPS= change in Spending/change in income= change in S/change in YMPC+MPS=1 OR MPC+MPS=100% of disposable incomeDisposable income=income after taxes= Y-TMultiplier=1/MPS OR Multiplier= (1/(1-MPC))Deposit Expansion Multiplier (Monetary Policy):Key:DEM= Deposit Expansion MultiplierRes. R= Reserve RateFormulas:DEM=1/Res. RRes. R= required reserve + excess reserveLabor Force:Key:LF=Labor ForceU= UnemployedE= EmployedFormulas:LF= U+EUnemployment Rate= (# of U)/(U+E) x 100Labor Force Participation Rate= (U+E)/Population x 100Employment to Population Rate= E/population x 100Real:Purchasing PowerHas inflation taken outNominal:Number of dollarsIncludes inflationEquation of Exchange:Key:M= Nominal Supply of Money (# of U.S dollars in circulation)V= Velocity of Money (On average how many times a dollar is spent in a year)MV= Total SpendingP= APL= Average Price Level (Measure of inflation)Q= RGDP= (# of things produced minus inflation)PQ= Nominal GDPPQ= Total RevenueEquation:MV=PQSituations:Total Spent (MV) = Total Revenue (PQ)MV (Total Spent) > PQ (Total Revenue) NEVERMV (Total Spent) < PQ (Total Revenue) NEVERQuantity Theory of Money:Key:M= Nominal Supply of Money (# of U.S dollars in circulation)V= Constant Velocity of Money (On average how many times a dollar is spent in a year)MV= Total SpendingP= APL= Average Price Level (Measure of inflation)Q= Constant RGDP= (# of things produced minus inflation)PQ= Nominal GDPPQ= Total RevenueEquation:MV (V is constant) = PQ (Q is constant)M=PIn this version, the variables represent absolute values or numbers, and you will use multiplication to calculate it. % change in M + % change in V= % change in P + % change in Q% change in M= % change in PIn this version, the variables represent a percent of change, and you will use additionSituation:If M (Money Supply) increases, P (Inflation) will increaseIf M increases by 10%, P will increase by 10%If P increases by 10%, M will only increase if the Fed wants to and it will increase by whatever the Fed increases it by. 4 Major Tools of the Fed: Expansionary Monetary Policy means easier for the banks to loan out moneyo Lower reserve requiremento Lower discount rateo Fed will be buying more bondso Lower interest on reserves Contractionary Monetary Policy means harder for the banks to loan out moneyo Higher reserve requiremento Higher discount rateo Fed will sell more bondso Higher interest on reserves1 Minor tool of the Fed:Decreasing the margin requirement is expansionary policyIncreasing the margin requirement contractionary policy Supply and Demand: *If question asks about price and quantity sold, think about this graphKey:Q= QuantityP= PriceS=SupplyD= DemandSupply and Demand Calculations:Key:TR= Total RevenueCS= Consumer SurplusPS= Producer SurplusFormulas:TR=Base x HeightPS= ½ Base x HeightCS= ½ Base x (Height- Market price)Goods and Services: *If question asks about APL, Average Price Level, think about this graphKey:LRAS= Long Run Aggregate SupplySRAS= Short Run Aggregate SupplyAD= Aggregate DemandY=Income (RGDP)YFE= Y Full EmploymentYPOT= Y PotentialYNRU= Y Natural Rate of UnemploymentAPL= Average Price LevelG&S= Goods and ServicesTR= Total Revenue (PQ of goods/services sold)TC= Total Cost (pq of intermediate products and parts used to make the end result)L= LandN= LaborK= Capitale= EntrepreneurshipR= RentW= Wagesi= InterestΠ=ProfitP= PriceQ= QuantityFormulas:Profit= Π = TR-TCWhere Profit>0TR= P x QTC= (LNKe) x (RWi Π)p x qAverage Price Level= APL= Price of Goods and Services + Price of ResourcesShort Term= APL increases, Profits increase, Producers produce moreLong Term= APL increases, Total Revenue increases, Profits have no changeSituations:A point to the left of LRAS is in a busting economy; i.e. High unemployment, low inflation.A point to the right of LRAS is in a booming economy; i.e. high inflation, low unemployment.A point at equilibrium with LRAS is at full employment, and at natural rate of unemployment.If you shift LRAS, you must also shift SRAS.Label new equilibrium Y actual when SRAS or AD shiftLabel new equilibrium Y FE2, POT2, NRU2 when LRAS And SRAS shiftLoanable Funds: *If question asks about interest rates, think about this graphKey:Q= Quantityir= Interest Rates (in this case it is the Real Interest Rate)LF=Loanable FundsS=
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