Formulas & More

Question 1

MULTIPLIER EFFECT

Answer 1

1

—————— x change in spending

(1-MPC)

Question 2

PRICE ELASTICITY OF DEMAND

Answer 2

% change in QUANTITY DEMANDED

_________________________________

% change in PRICE

Question 3

INCOME ELASTICITY OF DEMAND

Answer 3

% change in QUANTITY DEMANDED

___________________________________

% change in INCOME

Normal if > 1

Inferior if

Question 4

REAL GDP

Answer 4

NOMINAL GDP

——————————- x 100

GDP DEFLATOR

Question 5

CONSUMER PRICE INDEX (CPI)

Answer 5

(CPI CURRENT - CPI LAST)

————————————————— x 100

CPI LAST

YEAR 1 = 1.0

Question 6

NET DOMESTIC PRODUCT (NDP)

Answer 6

GDP

• DEPRECIATION

Question 7

NATIONAL INCOME (NI)

Answer 7

NET DOMESTIC PRODUCT (NDP)

+ NET INCOME EARNED ABROAD

• INDIRECT BUSINESS TAXES

Question 8

PERSONAL INCOME (PI)

Answer 8

NATIONAL INCOME (NI)

• CORPORATE INCOME TAXES
• UNDISTRIBUTED CORPORATE PROFITS
• SOCIAL SECURITY CONTRIBUTIONS

+ TRANSFER PAYMENTS (PUBLIC & PRIVATE)

Question 9

DISPOSABLE INCOME (DI)

Answer 9

PERSONAL INCOME (PI)

• PERSONAL INCOME TAXES

Question 10

SHARPE MEASURE

Answer 10

(PORTFOLIO RETURN - RISK FREE RATE)

STANDARD DEVIATION

Question 11

TREYNOR INDEX

Answer 11

(PORTFOLIO RETURN - RISK FREE RATE)

BETA

Question 12

JENSEN MEASURE

Answer 12

RISK FREE RATE + ((RETURN ON MARKET INDEX - RISK FREE RATE) x BETA)

Question 13

What is included under the income approach for calculating GDP?

Answer 13

Sole Proprietor and Corp Income

Passive Income

Taxes

Employee Salaries

Foreign Income Adjustments

Depreciation

Question 14

The “expenditure approach” to GDP determination includes…

Answer 14

GDP = C + Ig + G + Xn

C = personal consumption expenditures

Ig = gross private domestic investment

G = government purchases of goods and services

Xn = exports minus imports or net exports