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) =  qty S S2
price of substitute in production =S P
price of complement in production =S S1
resource price or other input price =S
Future Prices expected to  =S
number of sellers =S D
productivity =S
Q
Demand (Households)
price of good/service (graphed) =  qty D
price of substitute in consumption =  D
price of complement in consumption =D P S
Income  (inferior good) =D
Income  (normal good) =D
Future Prices expected to  =D D1
Future Income expected to =  D D2
number of buyers =D
in preferences =  D (item A) and  D (item B) 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)

Number of
people unemployed
Unemployment rate = x 100
Labor force

Labor force Labor force

x 100
participation rate = Working-age population

% Change = difference between two variables

x 100
Original variable

% Change = Current # - original/base #

x 100
original/base #
 FORMULAS-Chapter 23 (Chapter 7)
Cost of CPI basket at current period prices
CPI = x 100
Cost of CPI basket at base period prices

Inflation rate = CPI in current year  CPI in previous year x 100

CPI in previous year

GDP deflator = (Nominal GDP  Real GDP)  100.

Nominal wage rate in 2006

Real wage rate in 2006 = x 100
CPI in 2006

Real interest rate = Nominal interest rate – Inflation rate.

CPI in 2007
Price of stamp x
Price of stamp in 2007 dollars =
in 1907 dollars CPI in 1907
 FORMULAS-Chapter 24 (Chapter 8);
Labor Supply/Demand
Nominal Wage Rate
RWR =
Price Level

LS2
RWR
LS1

LD

Labor

LS
RWR

LD1
LD2

Labor
FORMULAS- Chapter 25 (Chapter 9)

Growth of Real GDP in current year – Real GDP in previous year

real GDP = x 100
Real GDP in previous year

Growth of Real GDP per Person in

– Real GDP per Person in
real GDP = current year previous year x 100
per Person Real GDP in previous year

Population in current year – Population in previous year

Growth of
Population = x 100
Real GDP in previous year

Growth of real Growth rate of real GDP – Growth rate of population

=
GDP per person

Real GDP = quantity of labor (aggregate hours) x Labor productivity

Labor Productivity = Real GDP Years to 70

Aggregate hours Double = Annual % Growth Rate
FORMULAS-Chapter 26 (Chapter 10);
Loanable Funds Market
SLF
RIR = Qty LF supplied
RIR SLF1
 Disp. Inc. =  savings =  SLF
SLF2
 Wealth =  savings =  SLF
 Exp.Fut.Inc. =  savings =  SLF
DLF

LF
DLF
RIR = Qty DLF
Exp. Profit =  amt. invested =  DLF
Population =  DLF
Bus. Cycle Expansion =  DLF
Technology, successful new products =  DLF
Optimism =  Investment // Pessimism =  Investment
 FORMULAS-Chapter 26 (Chapter 10);
Loanable Funds Market
NI = GI - Depreciation
Asset Price  = Interest Rate 
SLF = PSLF + GSLF

Govt surplus Govt deficit

Govt Deficit
Govt Surplus ADDS to Private savings = ADDS to Private demand for
PSLF loans =
RIR RIR SLF
SLF  RIR
 Qty of private savings  RIR
DLF
 Qty of loanable funds  Qty of private funds supplied
DLF  Investment PDLF  Qty of loanable funds
LF LF  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
Financial Technology =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
RRR =  MS Thus, Shortrun NIR adjusts, Longrun PL adjusts
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
PL = GDP deflator / 100 RGDP demanded  AD
price level  RWR
AS AS1
PL
PL = qty S RGDP b/c of RWR AS2

Pot. GDP = AS
MWR = AS AD

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) =
PL = qty D RGDP and AD imports (we buy more of their goods) = AD (and less of ours)

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)
 AS
NIR MS PL Good x RGDP
PPF PF

MD AD Good y
QM RGDP MC RWR LS

MB LD
Labor

Goods & Services Labor Loanable Funds

P S RWR LS RIR SLF
Surplus Market effecting Price Floor
shortage, Market effecting Price Ceiling
D LD DLF
Q Labor LF

Surplus Deficit
PSLF RIR SLF
RIR SLF

DLF
DLF PDLF
LF LF