All the equations for paper 3 summative on macroeconomics

Question 1

What is GNI?
and write down the equation

Answer 1

Gross National Income (GNI) is the total income earned by a country’s people and businesses, including investment income, regardless of where it was earned.

(GDP + income from abroad − income sent abroad)

Question 1

Write down the equation for the GDP Deflator

Answer 1

Nominal GDP/
Real GDP
x 100

Question 2

Write down the equation for Real GDP

Answer 2

Nominal GDP/
Price Deflator
x 100

Question 3

Write down the equation for GDP Per Capita

Answer 3

Total GDP/
Population

Question 4

Write down the equation for Real GDP Per Capita

Answer 4

Real GDP/
Population

Question 5

Write down the equation for the Labor Force/ Unemployment Rate

Answer 5

Labor force = number of unemployed
+ number of employed

Unemployment rate =
number of unemployed/
Labor force
x 100

Question 6

Write down the equation for Constructing a Weighted Price Index and explain how its created

Answer 6

(i.) Find the value of the basket in current prices for each year;
(ii.) Divide the value of the basket for each year by the value of the basket in the base year and multiply by 100. This will give you the price index number for each year.
Or, use the following formula:
value of a basket in a specific year /
value of same basket in base year
x 100
(ii.) Once the price index is constructed, inflation can be expressed as a percentage change of the index from one year to the other, which is simply a measure of the percentage change in the value of the basket from one year to another. This is where the “Inflation Rate” formula will be applied.

Question 7

Write down the equation for the Inflation Rate Based on CPI

Answer 7

(CPI(f) - CPI(i)) /
CPI (i)
x 100

(a positive percentage change indicates inflation; a positive percentage change, but one that is less than the previous year indicates disinflation; a negative percentage change indicates deflation)

Question 8

Write down the equation for the Rate of Economic Growth

Answer 8

(real GDP(f) - real GDP(i)) /
real GDP(i)
x 100

(if the annual growth rate is negative, then the economy is in a recession)

Question 9

write down the equation for the Gini Coefficient

Answer 9

(area between diagonal and lorenz curve)/
(entire area under diagonal)
OR
(A) /
(A+B)

It has a value between 0 and 1; the closer the value is to 0, the greater the income equality; the closer the value is to 1, the greater the income inequality.

Question 10

write down the equation for the Marginal Tax Rate

Answer 10

The tax rate paid on additional income, or on the last amount of tax paid, expressed as a percentage.
Suppose we want to calculate the amount of income tax paid on an annual income of $59,000. The total tax paid will be 0 for the first $10,000 of this income; 9% on income between $10,0001 and $25,000; 22% on income between $25,001 and $55,000; and finally 40% on income between $55,001 and $59,000.
Use the appendix below to review the marginal tax rates.

Question 11

write down the equation for the Total Tax Rate

Answer 11

Sum of income tax paid (determined by the marginal tax rates)

Question 12

write down the equation for the Average Tax Rate

Answer 12

total tax paid/
total income
x 100

Question 13

write down the equation for the Real Interest Rate

Answer 13

Nominal interest rate - inflation rate = Real interest rate

Nominal rate of interest is simply the market rate that prevails at any moment in time (ie, 5% interest on your savings); Real rate of interest is the interest that has been corrected for inflation (ie, if annual rate of inflation is 3% and the nominal interest rate is 5% per year, the real rate of interest is 5% - 3% = 2% per year

Question 14

write down the equation for the Keynesian Multiplier

Answer 14

Multiplier = (change in real GDP)/
(initial change in expenditure);

Or, alternatively,

initial change in expenditure
×
multiplier
= change in real GDP.

Alternatively,

Multiplier = (1)
/
(1- mpc) =
1/
(mps + mpt + mpm)