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GDP = Gross Domestic Product

  • Nominal GDP - use current year prices
  • Base GDP - use base year prices

Y = C + I + G + NX

  • Y = GDP
  • C = Consumption
  • I = Investment
  • G = Government Spending
  • NX = Net Exports (Exports - Imports)

GDP Deflator = ((nominal GDP) / (real GDP)) * 100

Percent Change = ((Year 2 - Year 1) / (Year 1)) * 100

U-rate (unemployment rate) = ((# of unemployed) / (labor force)) * 100

Labor force participation rate = ((labor force) / (adult population)) * 100

CPI (Consumer Price Index) = ((cost of basket in current year) / (cost of basket in base year)) * 100

Inflation rate = ((CPI this year - CPI last year) / (CPI last year)) * 100

Amount in today's dollars = (amount in year T dollars) * ((price level today) / (price level in year T))

Real Wage: (W / P) = ($15/hour) / ($5/unit of output) = 3 units output per hour

  • 1 / P is the value of $1, measured in goods
  • A relative price is the price of one good relative to (divided by) another

Quantity Equation: (M * V) = (P * Y)

  • M = money supply
  • V = velocity
  • P = price
  • Y = real GDP

Velocity of Money: V = (P * Y) / M

Fisher Effect: (nominal interest rate) = (inflation rate) + (real interest rate)

Wealth Effect: P rises, C falls

Interest Rate Effect: P rises, I falls

Exchange Rate Effect: P rises, NX falls

Y = Yn + a

  • Y = real GDP
  • Yn = Natural Rate of Output
  • a = the deviation, defined as (actual price level - expected price level)
  • When P deviates from the Expected Price, Y deviates from the Natural Rate of Output

Production Function: Y = AF(L, K, H, N)

Private Saving: Y - T - C

Public Saving: T - G

National Saving: (Y - T - C) + (T - G) or Y - C - G

Future Value of Money: FV = PV(1 + r)^N

  • FV = Future Value
  • PV = Present Value
  • r = interest rate
  • N = number of time periods

Present Value of Money: PV = FV / ((1 + r)^N)

The Money Multiplier = 1 / R

  • R = reserve ratio

The Multiplier Effect: 1 / (1 - MPC)

  • MPC = Marginal Propensity to Consume

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