Macroeconomics Equations

Supply and Demand equation

Q^d = D(P,Y)

Where Q^d is demand, P is price, Y income, and D() expresses how the variables in parentheses determine the quantity of pizza demanded

How is GDP calculated

(Price of good 1 x quantity of good 1) + (Price of good 2 x quantity of good 2) +…

GDP Deflator

[ Nominal GDP / Real GDP ] x 100

Nominal GDP

Real GDP x GDP deflator

Real GDP

Nominal GDP / GDP Deflator

Components making up GDP (Y)

Y = C + I + G + NX

where NX = net exports

GNP (Gross national product)

GNP = GDP + Factors payments from abroad - Factors payments to abroad

NNP (net national product)

NNP = GNP - Depreciation

National income

National income = NNP - Statistical Discrepancy

Consumer price index (CPI)

[ (quantity x current price) / (quantity x base price) ] x 100

Unemployment rate

(Number of unemployed / Labor force) x 100

Labor-force participation rate

(Labor force / Adult population) x 100

Production function

Y = F(K,L)

Profit

PY - WL - RK

Revenue

PY

Labor costs

WL

Capital costs

RK

Marginal product of labor (MPL)

F(K, L+1) - F(K,L)

Real wage

W/P

MPL and W/P relationship

MPL = W/P

Marginal Product of Capital (MPK)

F(K+L, L) - F(K, L)

Real rental price of capital

R/P

Change in profit from renting an additional machine

(P x MPK) - R

Economic profit

Y - (MPL x L) - (MPK x K)

Income (Y)

(MPL x L) + (MPK x K) + Economic Profit

Accounting profit

Economic profit + (MPK x K)

Cobb-Douglas Production Function

F(K,L)=AK^α(L^1−α)

α

A constant between zero and one that Determines what share of income goes to capital and what share goes to labor

A

Parameter greater than zero that measures the productivity of technology

Capital income

MPK x K = Y

Labor Income

MPL x L = (1-α)Y or (1-α)Y/L

Marginal product of capital

αA(K^α-1)(L^1-α) or αY/K

Disposable income

Y-T

Consumption function

C(Y-T)

Investment

I = I( r )

Private savings

Y - T - C

Public savings

T - G

Crowding out

The reduction in investment that results when expansionary fiscal policy raises the interest rate