Macroeconomics Cheat Sheet

Flashcards for Macroeconomics review.

Labor Participation Rate

Number of people in labor force divided by the working age population.

Unemployment Rate

Number of unemployed divided by the labor force, multiplied by 100.

% Change in GDP

(New GDP - Old GDP) / Old GDP X 100

Consumer Price Index

Price of goods in current year divided by the price of market basket in base year x 100

GDP deflator

Nominal GDP divided by Real GDP, multiplied by 100.

GDP (Expenditure Approach)

Consumer spending + Investment + Government Spending + Net Exports.

GDP (Income Approach)

Wages + Interest + Rent + Profit.

MPS

1 - MPC.

Spending Multiplier

1/MPS OR 1/(1-MPC)

Tax Multiplier

-MPC/MPS OR (1/MPS) - 1

Money Multiplier

1 / reserve requirement ratio.

Real Interest Rate

Nominal Interest Rate - Inflation.

Quantity Theory of Money

M x V = P x Y

Investment

Business spending on physical capital, never personal investing.

Fiscal Policy

Government changes spending and/or taxes; shifts AD.

Monetary Policy

Central banks influence interest rates by changing the reserve requirement, discount rate, or by doing open market operations; shifts AD.

Open Market Operations

When central banks buys or sell bonds

Crowding Out

Deficit spending leads to higher real interest rates and less Investment.

Capital Inflow

High interest rates decrease investment but attract more foreign financial capital.

Comparative advantage

A country makes a good at a lower opportunity cost than another country.

Full employment

When there is only frictional and structural unemployment.

Open Market Operations

Government buys or sells bonds.