Formulas

Question 1

slope

Answer 1

vertical distance/change between 2 points / horizontal distance/change between 2 points

Question 1

compounding economic growth

Answer 1

value = principle * (1 + %rate) ^ # of years

Question 2

compound interest

Answer 2

value = principle * (1 + %rate) ^ # of years

Question 3

market output when externalities exist

Answer 3

social demand = market demand +/- externalities (increases or decreases market output or supply)

Question 4

measures of income flow sequence

Answer 4

gross domestic product (GDP)
- depreciation
= net domestic product (NDP)
\+ net foreign factor income
= national income (NI)
- indirect business taxes, corporate profits, interest payments, Social Security taxes
\+ transfer payments, capital income
= personal income (PI)
- personal income taxes
= disposable income (DI)

Question 5

real GDP

Answer 5

real GDP in year x = (nominal GDP in year x / price index) * 100

Question 6

value of GDP

Answer 6

GDP = C consumption expenditure + I investment expenditure + G government expenditure + (X exports - M imports)

Question 7

net domestic product (NDP)

Answer 7

NDP = GDP - depreciation

Question 8

national income (NI)

Answer 8

NI = NDP + net foreign factor income

Question 10

disposable income (DI)

Answer 10

DI = personal income - personal taxes

DI (Yd) = consumption (C) + saving (S)

Question 11

price index

Answer 11

price index = price increase with base of 100% (3.3% increase is 103.3% / 100 = 1.033)

Question 12

inflation

Answer 12

value = principle / (1 + %rate) ^ # of years

Question 13

price level increase

Answer 13

price level increase = (CPI year 1 - CPI year 2) / CPI year 1

Question 14

labor force participation rate

Answer 14

labor force

participation rate = # of working age population working or seeking employment / # of working age population x 100

Question 15

% change in CPI

Answer 15

% change in CPI = item weight * % change in price of item

Question 16

real interest rate

Answer 16

real interest rate = nominal interest rate - anticipated rate of inflation

Question 17

real value of savings at year-end

Answer 17

real value of savings at year end = savings balance / (price level at year-end / price level at year-start)

Question 18

average propensity to consume (APC)

Answer 18

APC = total consumption (C) / total disposable income (Yd)

Question 19

total consumption

Answer 19

C = autonomous consumption (a) + income-dependent consumption

Question 20

consumption function (Cf)

Answer 20

C = a + (b * Yd) (autonomous consumption + marginal propensity to consume * disposable income

Question 21

consumer savings (S)

Answer 21

S = Yd - C (disposable income - consumption)

Question 22

actual investment

Answer 22

actual investment = desired investment + undesired investment

Question 23

multiplier (M)

Answer 23

M = 1 / (1 - MPC or marginal propensity to consume)

Question 24

total change in spending

Answer 24

total change in spending = multiplier * initial change in aggregate spending

Question 25

total change in spending

Answer 25

total change in spending = multiplier * new spending injection

Question 26

cumulative increase (horizontal shift) in AD

Answer 26

``` cumulative increase (horizontal shift) in AD = new spending injection (fiscal stimulus) + induced increase in consumption = multiplier * fiscal stimulus (new spending injection) ```

Question 27

desired fiscal stimulus

Answer 27

desired fiscal stimulus = AD shortfall / multiplier

Question 28

initial increase in consumption | initial consumption injection

Answer 28

initial increase in consumption = MPC * tax cut | initial consumption injection = MPC * tax cut

Question 29

cumulative change in spending

Answer 29

cumulative change in spending = multiplier * initial change in consumption

Question 30

desired tax cut

Answer 30

desired tax cut = desired fiscal stimulus / MPC

Question 31

initial fiscal stimulus (injection)

Answer 31

initial fiscal stimulus (injection) = MPC * increase in transfer payments

Question 32

desired fiscal restraint

Answer 32

desired fiscal restraint = excess AD / multiplier

Question 33

cumulative reduction in spending

Answer 33

cumulative reduction in spending = multiplier * initial budget cut (fiscal restraint)

Question 34

desired increase in taxes

Answer 34

desired increase in taxes = desired fiscal restraint / MPC

Question 35

desired tax hike

Answer 35

desired tax hike = desired fiscal restraint / multiplier

Question 36

budget deficit

Answer 36

budget deficit = government spending - tax revenues > 0

Question 37

total budget balance

Answer 37

total budget balance = cyclical balance + structural balance

Question 38

reserve ratio

Answer 38

reserve ratio = bank reserves / total deposits

Question 39

required reserves

Answer 39

required reserves = required reserve ratio * total deposits

Question 40

excess reserves

Answer 40

excess reserves = total reserves - required reserves

Question 41

money multiplier

Answer 41

money multiplier = 1 / required reserve ratio

Question 42

potential deposit creation

Answer 42

potential deposit creation = excess reserves of banking system * money multiplier

Question 43

available lending capacity of banking system (unused lending capacity)

Answer 43

available lending capacity of banking system = excess reserves * money multiplier

Question 44

yield

Answer 44

yield = annual interest payment / price paid for bond

Question 45

real interest rate

Answer 45

real interest rate = nominal interest rate - anticipated inflation rate

Question 46

growth rate of total output

Answer 46

growth rate of total output = growth rate of labor force - growth rate of productivity

Question 47

labor productivity

Answer 47

labor productivity = total output / total employment

Question 48

growth rate of total output

Answer 48

growth rate of total output = growth rate of labor force - growth rate of productivity

Question 49

labor productivity

Answer 49

labor productivity = total output / total employment

Question 50

trade balance

Answer 50

trade balance = exports - imports

Question 51

current-account balance

Answer 51

current-account balance = trade balance + unilateral transfers

Question 52

capital-account balance

Answer 52

capital-account balance = foreign purchases of US assets - US purchases of foreign assets

Question 53

net balance of payments

Answer 53

net balance of payments = current-account balance + capital-account balance = 0