AP Macroeconomics Formulas & Equations

Calculate nominal GDP with

current year prices

Calculate real GDP with

base year prices

GDP =

C + I + G + (X − M)

GDP Deflator (percentage) =

((nominal GDP) / (real GDP)) × 100

Percent Change in Whatever =

((Year 2 − Year 1)/(Year 1)) × 100

Unemployment rate =

((number of unemployed) / (labor force)) × 100

Labor force participation rate =

((labor force) / (adult population)) × 100

Consumer Price Index =

((cost of market basket in current year) / (cost of market basket in base year)) × 100

Inflation rate =

((CPI this year − CPI last year)) × 100

Amount in today's dollars =

(amount in year T dollars) × ((price level today) / (price level in year T))

Real Wage =

(Wage / unit of time) / (Price / unit of output)

Quantity equation:

(Money supply × Velocity of money) = (Price × real GDP)

Velocity of Money =

(Price × real GDP) / (Money supply)

Fisher Effect:

(nominal interest rate) = (inflation rate) + (real interest rate)

Wealth Effect:

When the price level rises, consumer spending decreases.

Interest Rate Effect:

When the price level rises, investment spending decreases.

Exchange Rate Effect:

When the price level rises, net exports decrease.

Real GDP =

Natural Rate of Output + (actual price level − expected price level)

When the price level deviates from the expected price,

GDP deviates from the Natural Rate of Output

Future Value of Money =

(Present Value) × (1 + the interest rate)^number of time periods

Present Value of Money =

Future Value / ((1 + the interest rate)^number of time periods)

The Money Multiplier =

1 / (the reserve ratio)

The Multiplier Effect =

1 / (1 − marginal propensity to consume)