Key Equations

Question 1

Labor Participation Rate

Answer 1

people in labor force / working age population x 100

Question 2

Unemployment rate

Answer 2

people unemployed / # people in labor force x 100

Question 3

%Change in GDP

Answer 3

(NewGDP-OldGDP) / Old GDP x 100

Question 4

Consumer Price Index

Answer 4

Value of market basket / Value in base year x 100

Question 5

GDP deflator

Answer 5

Nominal GDP / RealGDP x 100

Question 6

GDP (Expenditure Approach)

Answer 6

C+I+G+(X-M)

Question 7

GDP (Income Approach)

Answer 7

Wages+Rent+Interest+Profit

Question 8

MPS (Marginal Propensity to Save)

Answer 8

1- MPC

Question 9

MPC (Marginal Propensity to Consume)

Answer 9

the proportion of a raise that is spent on the consumption of goods and services, as opposed to being saved. MPC=1-MPS

Question 10

Spending Multiplier

Answer 10

Shows what impact a change in autonomous spending will have on total spending and aggregate demand in the economy. SM= 1/MPS

Question 11

Tax Multiplier

Answer 11

Tells you just how big of a change you will see in real GDP as a result of a change in taxes. MPC/MPS or (1/MPS)-1

Question 12

Money Multiplier

Answer 12

1/(Reserve Requirement)

Question 13

Real Interest Rate

Answer 13

Nominal Interest Rate - Expected Inflation

Question 14

Quantity Theory of Money

Answer 14

The quantity theory of money is a framework to understand price changes in relation to the supply of money in an economy. It argues that an increase in money supply creates inflation and vice versa. The Irving Fisher model is most commonly used to apply the theory. MxV=PxY where M is the quantity of money, V is the velocity of money, P is the average price of goods and services, and Y is the level of real output of goods and services.