AP Macroeconomics Review of Formulas

Calculate Opportunity Cost

X = Δ Y ÷ Δ X

Comparative Advantage Output

Opportunity cost of A is B ÷ A

Comparative Advantage Input

Opportunity cost of A is A ÷ B

Expenditure Approach to GDP

GDP = C + I + G + Xn

Income Approach to GDP

GDP = W + I + R + P

Per Capita GDP

rGDP ÷ Population

GDP deflator

= (Nominal GDP ÷ Real GDP) × 100

Consumer Price Index for Year X

= Value of Basket year x÷ Value of Basket base year × 100

Inflation Rate

= (New Index - Old Index) ÷ Old Index × 100

Fischer Equation

Real interest rate = nominal interest rate - inflation rate

Labor Participation

= Labor Force ÷ Population Able to Work × 100

Unemployment Rate

= Unemployed ÷ Labor Force × 100

Marginal Propensity to Consume (MPC)

= Δ Consumption ÷ Δ Disposable Income

MPC + MPS =

= 1

Δ in GDP

= Δ Government Spending x (1÷ (1-MPC))

Spending Multiplier

1-MPC

Tax Multiplier

(1÷ 1-MPC) -1

Required Reserve Rate =

= Required Reserves ÷ Demand Deposits

Money Multiplier =

= 1 ÷ Required Reserve Rate

Change in Money Supply =

= (1 / Required Reserve Rate) × Excess Reserves

Quantity Equation of money

MV = PV

Current Account + Financial Capital Account =

=0

Natural Rate of Unemployment =

= Frictional + Structural