AP Macro Unit 2 equations

MPS =

change in saving / change in disposable income

(Snew-Sold/Ydnew-Ydold)

MPC =

change in consumption / change in disposable income

(Cnew-Cold/Ydnew-Ydold)

The only two things a household can do with its money are spend or save (in other words):

MPS + MPC = 1

Change in GDP =

Change in AD / MPS = Change in AD / 1 - MPC

GDP =

C + I + G + X - IM

per-unit cost of production =

total input cost / total output

Productivity =

total output / total inputs

Output gap =

actual aggregate output - potential output / potential output X 100

Growth of real GDP =

Real GDP in current year - Real GDP in previous year / Real GDP in previous year X 100

nominal interest rate symbol

i

inflation rate symbol

pi

real rate symbol

r

r =

1 - pi

spending multiplier / expenditure multiplier =

1/mps

change in spending =

initial change X mutiplier

tax multiplier =

- mpc / 1 - mpc

Growth of Real GDP per person =

Growth rate of Real GDP- Growth rate of Population

investment multiplier =

chnage in real GDP / investment