Formulas Flashcards
slope
vertical distance/change between 2 points / horizontal distance/change between 2 points
compounding economic growth
value = principle * (1 + %rate) ^ # of years
compound interest
value = principle * (1 + %rate) ^ # of years
market output when externalities exist
social demand = market demand +/- externalities (increases or decreases market output or supply)
measures of income flow sequence
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)
real GDP
real GDP in year x = (nominal GDP in year x / price index) * 100
value of GDP
GDP = C consumption expenditure + I investment expenditure + G government expenditure + (X exports - M imports)
net domestic product (NDP)
NDP = GDP - depreciation
national income (NI)
NI = NDP + net foreign factor income
disposable income (DI)
DI = personal income - personal taxes
DI (Yd) = consumption (C) + saving (S)
price index
price index = price increase with base of 100% (3.3% increase is 103.3% / 100 = 1.033)
inflation
value = principle / (1 + %rate) ^ # of years
price level increase
price level increase = (CPI year 1 - CPI year 2) / CPI year 1
labor force participation rate
labor force
participation rate = # of working age population working or seeking employment / # of working age population x 100
% change in CPI
% change in CPI = item weight * % change in price of item
real interest rate
real interest rate = nominal interest rate - anticipated rate of inflation
real value of savings at year-end
real value of savings at year end = savings balance / (price level at year-end / price level at year-start)
average propensity to consume (APC)
APC = total consumption (C) / total disposable income (Yd)
total consumption
C = autonomous consumption (a) + income-dependent consumption
consumption function (Cf)
C = a + (b * Yd) (autonomous consumption + marginal propensity to consume * disposable income
consumer savings (S)
S = Yd - C (disposable income - consumption)
actual investment
actual investment = desired investment + undesired investment
multiplier (M)
M = 1 / (1 - MPC or marginal propensity to consume)
total change in spending
total change in spending = multiplier * initial change in aggregate spending
total change in spending
total change in spending = multiplier * new spending injection
cumulative increase (horizontal shift) in AD
cumulative increase (horizontal shift) in AD = new spending injection (fiscal stimulus) + induced increase in consumption = multiplier * fiscal stimulus (new spending injection)
desired fiscal stimulus
desired fiscal stimulus = AD shortfall / multiplier
initial increase in consumption
initial consumption injection
initial increase in consumption = MPC * tax cut
initial consumption injection = MPC * tax cut
cumulative change in spending
cumulative change in spending = multiplier * initial change in consumption
desired tax cut
desired tax cut = desired fiscal stimulus / MPC
initial fiscal stimulus (injection)
initial fiscal stimulus (injection) = MPC * increase in transfer payments
desired fiscal restraint
desired fiscal restraint = excess AD / multiplier
cumulative reduction in spending
cumulative reduction in spending = multiplier * initial budget cut (fiscal restraint)
desired increase in taxes
desired increase in taxes = desired fiscal restraint / MPC
desired tax hike
desired tax hike = desired fiscal restraint / multiplier
budget deficit
budget deficit = government spending - tax revenues > 0
total budget balance
total budget balance = cyclical balance + structural balance
reserve ratio
reserve ratio = bank reserves / total deposits
required reserves
required reserves = required reserve ratio * total deposits
excess reserves
excess reserves = total reserves - required reserves
money multiplier
money multiplier = 1 / required reserve ratio
potential deposit creation
potential deposit creation = excess reserves of banking system * money multiplier
available lending capacity of banking system (unused lending capacity)
available lending capacity of banking system = excess reserves * money multiplier
yield
yield = annual interest payment / price paid for bond
real interest rate
real interest rate = nominal interest rate - anticipated inflation rate
growth rate of total output
growth rate of total output = growth rate of labor force - growth rate of productivity
labor productivity
labor productivity = total output / total employment
growth rate of total output
growth rate of total output = growth rate of labor force - growth rate of productivity
labor productivity
labor productivity = total output / total employment
trade balance
trade balance = exports - imports
current-account balance
current-account balance = trade balance + unilateral transfers
capital-account balance
capital-account balance = foreign purchases of US assets - US purchases of foreign assets
net balance of payments
net balance of payments = current-account balance + capital-account balance = 0
