Formula Flash Cards

AP MACRO FORMULA MASTER LIST

GDP Formulas

• GDP equals C plus I plus G plus X minus M
• GDP equals wages plus rent plus interest plus profit
• Real GDP equals nominal GDP divided by GDP deflator times one hundred
• GDP deflator equals nominal GDP divided by real GDP times one hundred

Inflation Formulas

• Inflation rate equals new CPI minus old CPI divided by old CPI times one hundred
• CPI equals cost of market basket in current year divided by cost in base year times one hundred
• Real income equals nominal income minus inflation
• Real interest rate equals nominal interest rate minus inflation rate

Unemployment Formulas

• Unemployment rate equals unemployed divided by labor force times one hundred
• Labor force participation rate equals labor force divided by adult population times one hundred
• Natural rate of unemployment equals frictional plus structural

Money and Banking Formulas

• Required reserves equals demand deposits times reserve requirement
• Excess reserves equals total reserves minus required reserves
• Money multiplier equals one divided by reserve requirement
• Maximum money created equals excess reserves times money multiplier

Loanable Funds Formulas

• Real interest rate equals nominal interest rate minus inflation
• Supply of loanable funds comes from savings
• Demand for loanable funds comes from borrowers

Spending and Tax Multipliers

• Spending multiplier equals one divided by one minus marginal propensity to consume
• Tax multiplier equals negative marginal propensity to consume divided by one minus marginal propensity to consume
• Total change in GDP from spending equals initial change times spending multiplier
• Total change in GDP from taxes equals initial change times tax multiplier

Aggregate Demand and Supply Formulas

• No strict formulas but key relationships
• Increase in AD raises price level and output
• Decrease in AD lowers price level and output
• Increase in SRAS lowers price level and raises output
• Decrease in SRAS raises price level and lowers output

Phillips Curve Relationships

• Short run shows inverse relationship between inflation and unemployment
• Long run unemployment stays at natural rate
• Supply shocks shift the curve

Exchange Rate Formulas

• Real exchange rate equals nominal exchange rate times domestic price level divided by foreign price level
• Appreciation makes currency stronger
• Depreciation makes currency weaker

Balance of Payments Formulas

• Current account plus financial account equals zero
• Trade balance equals exports minus imports

Growth Formulas

• Economic growth equals percent change in real GDP
• Productivity equals output divided by input

Interest Rate Formulas

• Real interest rate equals nominal interest rate minus inflation
• Fisher equation shows relationship between nominal and real rates

Government Budget Formulas

• Budget balance equals taxes minus government spending
• Deficit equals spending greater than taxes
• Surplus equals taxes greater than spending
• Debt equals sum of all deficits

Key Ratios

• Marginal propensity to consume equals change in consumption divided by change in income
• Marginal propensity to save equals change in saving divided by change in income
• MPC plus MPS equals one