Macroeconomic Exam 2 Important Equations (CH. 10, 11, & 13)

GDP Identity

• = Consumption + Investment + Government Purchases + Net Exports

• Y= C + I + G + NX

Nominal GDP

• = (current price × current quantity) for every good added together.

• = (Price₁ × Quantity₁) + (Price₂ × Quantity₂) + (Price₃ × Quantity₃) + …

Real GDP

• = (base‑year price × current quantity) for every good added together.

• = (Base Price₁ × Quantity₁) + (Base Price₂ × Quantity₂) + (Base Price₃ × Quantity₃) +…

GDP Deflator

• = (Nominal GDP / Real GDP) x 100.

Inflation Rate

• = percent change in the GDP deflator from one year to the next

• = [(Deflator₂ − Deflator₁) ÷ Deflator₁] × 100

Consumer Price Index (CPI)

• = (Basket Cost Current Year ÷ Basket Cost Base Year) × 100

Inflation Rate (CPI)

• = [(CPI₂ − CPI₁) ÷ CPI₁] × 100

Converting Dollar Amounts Across Time

• Amount Today = Amount in Year T × (Price Level Today ÷ Price Level in Year T)

Real Interest Rate

• = Nominal Interest Rate − Inflation Rate

National Saving (Closed Economy)

• = GDP - Consumption - Government Purchases.

Private Saving

• = Income - Taxes - Consumption

• = Y − T − C

Public Saving

• = Taxes - Government Spending

• = T − G

Budget Surplus

• Happens when taxes are greater than government spending.

• T − G > 0

Budget Deficit

• Happens when government spending is greater than taxes.

• T- G > 0

National Saving Identity

• = Private saving + Public saving

• = S = Private Saving + Public Saving

Saving - Investment Identity (Closed Economy)

• In a closed economy, saving equals investment.

• S = I

Loanable Funds Markets Equilibrium

• Interest rate adjusts until saving supplied equals investment demanded.

• Saving = Investment