Economics Formulas

Per-Unit Opportunity Cost

Opportunity Cost/ Unit Gained

GDP (Expenditure Approach)

C + G + I + (E-I)

GDP (Income Approach)

Wages + Rent + Interest + Profit

GDP Growth Rate Formula

[(Year 2 GDP - Year 1 GDP) / Year 1 GDP] × 100

GDP Deflator

(Nominal GDP/Real GDP) x 100

or GDP Deflator

(Price of selected goods in current year/Price of selected goods in base year) x 100

Real GDP

(Nominal GDP/GDP Deflator) x 100

Output Growth

[(Year 2 GDP - Year 1 GDP) / Year 1 GDP] × 100

CPI

(Cost of market basket/Cost of market basket in base year) x 100

Inflation Rate (using CPI)

[(Year 2 CPI - Year 1 CPI)/Year 1 CPI] x 100

Inflation Rate (using GDP Deflator)

[(Year 2 GDP Deflator - Year 1 GDP Deflator)/Year 1 GDP Deflator] x 100

Labor Force

Employed + Unemployed

Labor Force Participation Rate

(Labor Force/Working Age Pop.) x 100

Unemployment Rate

(Num of Unemployed/Num in Labor force) x 100

Real GDP Growth Rate (also works for interest rate and income growth rate)

Nominal GDP Growth Rate - Inflation Rate

Nominal GDP Growth Rate (also works for interest rate and income growth rate)

Real GDP Growth Rate + Inflation Rate

MPC

Change in spending / Change in disposable income

MPS

Change in Saving/Change in disposable income

MPS + MPC =

1

Spending Multiplier

1/MPS

Tax Multiplier

-MPC/MPS

Change in GDP (or AD or Income) (Spending Multiplier)

Change in Spending X Spending Multiplier

Change in GDP (or Ad or Income) (Tax Multiplier)

Change in Taxes X Tax multiplier

Money Multiplier

1/Reserve Requirement

Change in the Money Supply

Change in Excess Reserves X Money Multiplier

Real Interest Rate (Fisher Equation)

Nominal interest rate – Inflation rate

Nominal Interest Rate (Fisher Equation)

Real interest rate + Inflation rate

Quantity Theory of Money

MV = PY (Money Supply X Velocity of Money = Price level X Real Output)

Another way to write Quantity Theory of Money

MV = Nominal GDP