STUDY GUIDE: MACROECONOMICS
ECON FORUMLA & GRAPH SHIFTS
For Each Chapter Covered
in ECON 2105
OPPORTUNITY COST – Chapter 3
Opportunity Cost Is a Ratio
O.C. cell phone =
# DVD lost
# Cell phone gained
O.C. DVD
=
# cell phones lost
# DVDs gained
When the opportunity cost of a cell phone is x DVDs,
the opportunity cost of a DVD is 1/x cell phones.
INCREASING OPPORTUNITY COSTS
ARE EVERYWHERE
Chapter 4: S/D of Goods and Services
Supply (Firms)
$price of good/service (graphed)
#price of substitute in production
$price of complement in production
#resource price or other input price
Future Prices expected to #
$number of sellers
$productivity
= $ qty S
=$S
=$S
=$S
=$S
=$S
=$S
P
Demand (Households)
$price of good/service (graphed)
= $ qty D
$price of substitute in consumption
=$D
#price of complement in consumption
=$D
P
Income # (inferior good)
=$D
Income $ (normal good)
=$D
Future Prices expected to $
=$D
Future Income expected to $
=$D
$number of buyers
=$D
r in preferences
= $ D (item A) and # D (item B)
S2
S1
D
Q
S
D1
D2
Q
FORMULAS-Chapter 21 (Chapter 5)
Expenditure Approach:
GDP = C + I + G + NX
(Consumption, Investment, Government, Net Exports)
Net Exports = Exports - Imports
Savings = Y – C - NT
Income Approach:
GDP = W + I + R + P + Indirect taxes – Subsidies + Depreciation
GDP = Net domestic product at factor cost+ Indirect taxes – Subsidies +
Depreciation
Net Domestic Product at Factor Cost = Wages + Interest + Rent + Profit
Total Income: Y = C + S + NT
(Consumption + Savings + Net Taxes)
Income = Expenditure
RGDP per Person = RGDP / Population
FORMULAS-Chapter 22 (Chapter 6)
Unemployment rate =
Number of
people unemployed
x 100
Labor force
Labor force
participation rate =
Labor force
Working-age population
% Change = difference between two variables
Original variable
% Change =
Current # - original/base #
original/base #
x 100
x 100
x 100
FORMULAS-Chapter 23 (Chapter 7)
CPI =
Cost of CPI basket at current period prices
Cost of CPI basket at base period prices
Inflation rate =
x 100
CPI in current year  CPI in previous year
CPI in previous year
x 100
GDP deflator = (Nominal GDP  Real GDP)  100.
Real wage rate in 2006 =
Nominal wage rate in 2006
CPI in 2006
x 100
Real interest rate = Nominal interest rate – Inflation rate.
Price of stamp in 2007 dollars =
Price of stamp x
in 1907 dollars
CPI in 2007
CPI in 1907
FORMULAS-Chapter 24 (Chapter 8);
Labor Supply/Demand
RWR
RWR
=
LS2
LS1
LD
Labor
RWR
LS
LD1
LD2
Labor
Nominal Wage Rate
Price Level
CURVE SHIFTS:
Labor Supply (Households)
$ qty LS
= $Wages (on y axis)
$ LS
= #income taxes
$ LS
= #unemployment benefits
$ LS
= $population
Labor Demand (Firms)
$ qty LD
= #Wages (on y axis)
$LD
= $Productivity
-Technology
-Human Capital
FORMULAS- Chapter 25 (Chapter 9)
Growth of
real GDP =
Real GDP in current year –
Growth of
real GDP =
per Person
Real GDP per Person in
Real GDP per Person in
–
current year
previous year
Real GDP in previous year
Growth of
Population =
Real GDP in previous year
x 100
Real GDP in previous year
Population in current year –
Growth of real
=
GDP per person
x 100
Population in previous year
x 100
Real GDP in previous year
Growth rate of real GDP – Growth rate of population
Real GDP = quantity of labor (aggregate hours) x Labor productivity
Labor Productivity =
Real GDP
Aggregate hours
Years to
Double =
70
Annual % Growth Rate
FORMULAS-Chapter 26 (Chapter 10);
Loanable Funds Market
SLF
RIR
= Qty LF supplied
 Disp. Inc. =  savings =  SLF
i Wealth
=  savings =  SLF
i Exp.Fut.Inc. =  savings =  SLF
RIR
SLF1
SLF2
DLF
DLF
RIR
= iQty DLF
Exp. Profit =  amt. invested
=  DLF
Population
=  DLF
Bus. Cycle Expansion
=  DLF
Technology, successful new products =  DLF
Optimism =  Investment // Pessimism = i Investment
LF
FORMULAS-Chapter 26 (Chapter 10);
Loanable Funds Market
NI = GI - Depreciation
Asset Price  = Interest Rate i
SLF = PSLF + GSLF
Govt surplus
ADDS to Private savings =
Govt Surplus
PSLF
SLF
RIR
DLF
LF
$ RIR
$ Qty of private savings
# Qty of loanable funds
# Investment
Govt Deficit
SLF
RIR
DLF
PDLF
LF
Govt deficit
ADDS to Private demand for
loans =
# RIR
# Qty of private funds supplied
# Qty of loanable funds
$ Investment
FORMULAS- Chapter 27 (Chapter 11)
M1 = Currency + checkable deposits + travelers checks
M2 = M1 + savings, time, & other deposits, money mktfunds
Not Money: $ inside banks, reg & e-checks, credit/debit cards
Money multiplier:
[C=Currency Drain / R=Desired Reserve]
1+C
R+C
FORMULAS- Chapter 28 (Chapter 12)
NIR=RIR + inflation rate
Inflation Rate = $ growth + Velocity growth – RGDP growth
Velocity = (PL x RGDP) / qty of money
MS MS2
NIR
PL = GDP deflator / 100
MD
#NIR
= $ qty MD
#PL
= # MD
#RGDP = # MD
MD1
r Financial Technology =r Money Demand
QM
#ATMs
= # MD LONG RUN:
#Credit Cards
= $ MD Fed makes Open Mkt purchase  #Qty $ $ NIR $ RIR 
#borrowing/investing (spending habits change)  change in
MS
production and prices
Thus, Shortrun NIR adjusts, Longrun PL adjusts
#RRR
= $ MS
#Disc rate
= $ MS
Shortrun#MS = $IR // Long run  #PL and NIR returns
Selling Securities = $ MS
$ MS = banks make smaller or less loans
$ MS = people deposit less money
#V = #inflation rate
FORMULAS- Chapter 29 (Chapter 13)
Inflation Rate = $ growth + Velocity growth – RGDP growth
Velocity = (PL x RGDP) / qty of money LONG RUN:
#price level  #MD  #NIR  #RIR  $spending  $qty
RGDP demanded  $AD
PL = GDP deflator / 100
#price level  $RWR
AS1
AS
PL
AS2
#PL = #qty S RGDP b/c of $RWR
#Pot. GDP
=# AS
AD
$MWR
=# AS
$Money price of other resource =# AS
RGDP
#exchange rate (from 100yen to 125 yen for $1) =
AD
cheaper foreign goods (12,500yen goes from $125 to $100) =
#imports (we buy more of their goods) = $AD (and less of ours)
#PL = $qty D RGDP and $AD
#Exp. Future income, inflation, profits
= # AD (expectations)
$taxes
= # AD (fiscal policy)
#Transfer pmts/Govt. Expenditure
= # AD (fiscal policy)
#qty money
= # AD (monetary policy)
$Interest rate
= # AD (monetary policy)
#Foreign Income
= # AD (world economy)
#Global economy (expands)
= # AD (world economy)
$Exchange rate
= # AD (world economy)
NIR
MS
AS
PL
MD
Good x
PPF
AD
QM
Good y
MC
RGDP
MB
RGDP
PF
RWR
LS
LD
Labor
Goods & Services
P
S
Loanable Funds
Labor
LS
RWR
D
RIR
LD
Q
DLF
Labor
LF
Deficit
Surplus
PSLF
SLF
RIR
SLF
RIR
DLF
DLF
LF
SLF
PDLF
LF
Surplus Market effecting Price Floor
shortage, Market effecting Price Ceiling