Macroeconomics Formulas and Graphing Symbols

Vocabulary flashcards for macroeconomics exam preparation covering formulas, acronyms, and graphing symbols.

Real Value (in economics)

Nominal value adjusted for inflation, calculated as Nominal minus Inflation.

CPI (Consumer Price Index)

(Current Year Market Basket/Base Year Market Basket) * 100; measures the change in the price level of a basket of goods and services.

Indexing

Adjusting economic data to reflect inflation; All Index (base) Years = 100.

Rate of Change (Percentage)

((Year Later - Year Earlier) / Year Earlier) * 100; measures the percentage change in a variable over time.

GDP Expenditure Approach

C + Ig + G + Xn; total spending in the economy.

GDP Income Approach

W+R+I+P; total income earned in the economy (Wages, Rent, Interest, Profit).

NDP (Net Domestic Product)

GDP minus Depreciation Values (CFC); measures net output of the economy.

GDP Deflator

(Nominal GDP/Real GDP) x 100; measures the overall price level of the economy.

Real GDP

(Nominal GDP/Deflator) x 100; GDP adjusted for inflation.

GDP Per Capita

Real GDP/Population; measures the average level of real GDP per person.

Okun’s Law

Every 1% increase in unemployment results in approximately a 2% decrease in GDP.

Rule of 70 (Doubling Rate)

Approximate time it takes for an investment to double at a given interest rate; calculated by dividing 70 by the percentage growth rate.

Unemployment Rate

(Unemployed / Labor Force) * 100; measures the percentage of the labor force that is unemployed.

Labor Force Participation Rate

(Labor Force / Adult Population) * 100; measures the percentage of the adult population that is in the labor force.

Real Income

(Nominal Income / Price Index) * 100; income adjusted for inflation.

Converting Income

Income x (CPI current year/CPI previous year); adjusting income values across different time periods to account for inflation.

MPC + MPS = 1

Marginal Propensity to Consume + Marginal Propensity to Save = 1.

Spending Multiplier

1 / (1 - MPC) or 1 / MPS; measures the multiple by which GDP increases in response to an increase in autonomous spending.

Tax Multiplier

-MPC / MPS; measures the multiple by which GDP decreases in response to an increase in taxes.

Balanced Budget Multiplier

Spending Multiplier Tax Multiplier; the net effect on aggregate demand from equal increases in government spending and taxes.

Bank Balances

DD (Demand Deposits) = RR (Required Reserves) + ER (Excess Reserves); the total of checking account balances in banks.

Loan/Money Multiplier

1 / rr (reserve ratio); measures the maximum amount the money supply can increase given an increase in reserves.

Monetarists Equation of Exchange (MV = PQ)

M (Money Supply) x V (Velocity of Money) = P (Price Level) x Q (Real GDP); relates the money supply to nominal GDP.

Yield (Bond Yield)

Annual interest rate / price of bond; explains the inverse relationship between interest rates and bond prices.

PPC/PPF

Production Possibilities Curve or Production Possibilities Frontier

P

Price

Q

Quantity

EP/EQ

Equilibrium Price/Equilibrium Quantity

D

Demand of an Individual Product

S

Supply of an Individual Product

GDP

Gross Domestic Product

DI

Disposable Income

MPC

Marginal Propensity to Consume

MPS

Marginal Propensity to Save

ID

Investment Demand

C

Consumption

Ig

Gross Private Investment

G

Government Expenditures

Xn

Net Exports (Exports minus Imports)

AD

Aggregate Demand

AS or SRAS

Aggregate Supply (Short Run)

LRAS

Aggregate Supply (Long Run)

Yf/Qf

LRAS Quantity

PL

Price Level

i

Nominal Interest Rates

r

Real Interest Rates

SM/MS

Supply of Money or Money Supply

MD/DM

Money Demand

DLF

Demand for Loanable Funds

SLF

Supply of Loanable Funds

PC/SRPC

Phillips Curve (Short Run)

LRPC

Phillips Curve (Long Run)

NRU

Natural Rate of Unemployment

S$

Supply of US Dollars

D$

Demand for US Dollars