ap macro formulas

Output expenditure model

GDP = C + IG + G + (X – M) consumption + gross investment + government spending + (exports – imports)

Income approach

GDP = consumption of employees + rents + interest + proprietors income + corporate profits + taxes on imports + statistical discrepancy – consumption of fixed capital

Marginal propensity to consume

1 – MPS

Marginal propensity to consume

change in consumption/change an income

Marginal propensity to save

1 – MPC

Spending multiplier

government multiplier = investment multiplier = 1/(1– MPC) = 1/MPS

Tax multiplier

MPC/(1 - MPC) = MPC/MPS (also 1 less than the spending multiplier)

Balanced budget multiplier

1

Inflation

nominal % change - real % change

Real % change

nominal percent change – inflation

CPI

(new Market Basket value/base Market Basket value) x 100

Deflator

(nominal value/real value) x 100

Inflation rate

((new index – old index)/old index) x 100

Real value

(nominal value/index) x 100

Money multiplier

1/reserve requirement

Quantity of money theory

Nominal GDP = M x V = P x Y

Future value —> time value of money

Present value + (present value x interest rate)

Present value —> time value of money

future value – (future value x interest rate)

Absolute advantage

Who can produce the most

Comparative advantage

Produce good or service at a lower opportunity cost

Opportunity cost —> outputs

Give up/ get

Opportunity cost —> inputs

Get/ give up