Econ Quiz 3 Equations

Percentage change

((new value - old value) / old value) * 100

Inflation rate

((new price index - old price index) / old price index) * 100

CPI

(cost of current market basket / cost of base-year market basket) * 100

CPI inflation

((new CPI - old CPI) / old CPI) * 100

GDP-deflator inflation

((new GDP deflator - old GDP deflator) / old GDP deflator) * 100

Nominal GDP

Sum of (current quantity * current price) for all final goods and services

Real GDP

Sum of (current quantity * base-year price) for all final goods and services

GDP using expenditure components

GDP = C + I + G + NX

Net exports

NX = exports - imports

GDP deflator

(nominal GDP / real GDP) * 100

Economic growth for one year

((new real GDP - old real GDP) / old real GDP) * 100

Average annual economic growth over multiple years

((final real GDP / initial real GDP)^(1 / number of years) - 1) * 100

Average annual inflation over multiple years

((final price index / initial price index)^(1 / number of years) - 1) * 100

Rule of 70 doubling time

70 / annual percentage growth rate

Real wage

Nominal wage / (price index / 100)

Real price

Nominal price / (price index / 100)

Convert an old nominal price to later-year dollars

Old nominal price * (later CPI / earlier CPI)

Convert a later nominal price to earlier-year dollars

Later nominal price * (earlier CPI / later CPI)

Convert a nominal price to base-year dollars

Nominal price / (price index / 100)

Approximate real interest rate

Nominal interest rate - inflation rate

Exact real interest rate

((1 + nominal interest rate) / (1 + inflation rate) - 1) * 100; use decimal rates such as 0.05

Budget deficit

Government expenditures - government revenue

Budget surplus

Government revenue - government expenditures

Government spending or revenue as a percentage of GDP

(variable / GDP) * 100

Federal debt as a percentage of GDP

(federal debt / GDP) * 100

Consumption component of GDP

C = household spending on final goods and services

Investment component of GDP

I = business capital spending + residential construction + inventory changes

j

k

Net exports component of GDP

NX = exports - imports

Real GDP growth from a table

Use the listed percentage change in real GDP, or calculate ((new real GDP - old real GDP) / old real GDP) * 100

Inflation from a table

Use the listed percentage change in the relevant price index, or calculate ((new index - old index) / old index) * 100

Core inflation

Percentage change in the CPI excluding food and energy prices

Headline inflation

Percentage change in the full CPI, including food and energy prices

Current-dollar price conversion direction

To convert an older price into newer dollars, multiply by later CPI divided by earlier CPI

Price conversion direction to older dollars

To convert a newer price into older dollars, multiply by earlier CPI divided by later CPI

GDP deflator interpretation

A price index equal to (nominal GDP / real GDP) * 100; it measures the price level of domestically produced final goods and services

CPI interpretation

A price index equal to (current basket cost / base basket cost) * 100; it measures the cost of a fixed basket bought by a typical household

Approximate versus exact real interest rate

Approximate: nominal rate - inflation rate. Exact: ((1 + nominal rate) / (1 + inflation rate) - 1) * 100

One-year versus multi-year growth formula

One year: ((new / old) - 1) * 100. Multiple years: ((final / initial)^(1 / years) - 1) * 100