Ultimate AP Macroeconomics Formula Sheet (copy)

What is the formula for converting Nominal GDP to Real GDP using a price index?

ext{Real} = rac{ ext{Nominal}}{ ext{Price Index}/100}

How do you compute the inflation rate from an index?

ext{Inflation rate} = rac{ ext{Index}t - ext{Index}{t-1}}{ ext{Index}_{t-1}} imes 100

What is the spending multiplier formula in fiscal policy?

ext{Spending multiplier} = rac{1}{1 - ext{MPC}}

If the government increases spending by $50$ and the MPC is $0.8$, what is the change in output?

$$ext{Change in output} = 5 imes 50 = 250$$

What is the formula for the money multiplier?

ext{Money multiplier} = rac{1}{ ext{rr}}

How is the maximum change in deposits calculated when the Federal Reserve increases reserves by $\Delta R$?

$$\Delta D_{\max} = \frac{1}{\text{rr}} \cdot \Delta R$$

What is the Approximate relationship in the Fisher Equation?

$$i \approx r + \pi^e$$

How do you compute the unemployment rate?

$$\text{Unemployment rate} = \frac{\text{unemployed}}{\text{labor force}} \times 100$$

What is the key formula for GDP using the expenditure approach?

$$GDP = C + I + G + (X - M)$$

What is the Rule of 70 used for?

It estimates the number of years required to double an investment given a fixed annual rate of return.

What happens to real GDP when the price index is above 100?

If the index is above 100, real GDP is smaller than nominal GDP.

What is the tax multiplier formula?

$$\text{Tax multiplier} = -\frac{\text{MPC}}{1 - \text{MPC}}$$

Explain the concept of appreciation in foreign exchange rates.

When a currency's value increases relative to another currency, it is said to appreciate.

What does $MV = PY$ represent in Macroeconomics?

It represents the quantity theory of money, linking the money supply, velocity, price level, and output.

How should you approach problems involving changes in interest rates by the Fed?

An expansionary monetary policy lowers interest rates and raises aggregate demand (AD).

What is a common mistake when computing percent change using an index?

Forgetting to divide the index by 100 during calculations.

What does the term MPS signify in macroeconomic formulas?

Marginal Propensity to Save, which is the fraction of additional income that is saved.

What is the effect of higher taxes on disposable income?

Higher taxes decrease disposable income, leading to a negative impact on consumption.

How do you calculate percent change in exchange rates?

Using the formula $\%\Delta e = \frac{e_{new} - e_{old}}{e_{old}} \times 100$.

What is the relationship between MPC and MPS?

$MPC + MPS = 1$, indicating that all income is either consumed or saved.

What does a negative tax multiplier signify?

That an increase in taxes will result in a decrease in aggregate output or income.

Describe a common misinterpretation of exchange rate quotes.

Confusing an increase in 'USD per 1 EUR' as a strengthening of the USD, when it actually means it has weakened.