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

FORMULAS-Chapter 21 (Chapter 5) Expenditure Approach: GDP = C + I + G + NX (Consumption, Investment, Government, Net Exports) 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 Net Exports = Exports - Imports Savings = Y – C - NT RGDP per Person = RGDP / Population

FORMULAS-Chapter 22 (Chapter 6) Unemployment rate = Number of people unemployed x 100 Labor force Labor force participation rate = Working-age population x 100 Labor force % Change = Original variable x 100 difference between two variables % Change = original/base # x 100 Current # - original/base #

FORMULAS-Chapter 23 (Chapter 7) CPI in current year  CPI in previous year CPI in previous year x 100 Inflation rate = CPI = Cost of CPI basket at current period prices Cost of CPI basket at base period prices x 100 GDP deflator = (Nominal GDP  Real GDP)  100. Price of stamp in 2007 dollars = Price of stamp in 1907 dollars x CPI in 2007 CPI in 1907 Nominal wage rate in 2006 CPI in 2006 x 100 Real wage rate in 2006 = Real interest rate = Nominal interest rate – Inflation rate.

FORMULAS-Chapter 24 (Chapter 8); Labor Supply/Demand Nominal Wage Rate Price Level RWR = 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 LD LS2 RWR Labor LS1 LD2 LS RWR Labor LD1

FORMULAS- Chapter 25 (Chapter 9) Growth of real GDP = Real GDP in current year Real GDP in previous year x 100 Real GDP in previous year – Growth of real GDP = per Person Real GDP per Person in current year Real GDP in previous year x 100 Real GDP per Person in previous year – Growth of real GDP per person Growth rate of real GDP Growth rate of population – = Growth of Population = Population in current year Real GDP in previous year x 100 Population in previous year – Labor Productivity = Real GDP Aggregate hours Years to Double = Annual % Growth Rate 70 Real GDP = quantity of labor (aggregate hours) x Labor productivity

FORMULAS-Chapter 26 (Chapter 10); Loanable Funds Market DLF  RIR =  Qty DLF  Exp. Profit =  amt. invested =  DLF  Population =  DLF Bus. Cycle Expansion =  DLF  Technology, successful new products =  DLF  Optimism =  Investment // Pessimism =  Investment SLF  RIR =  Qty LF supplied  Disp. Inc. =  savings=  SLF  Wealth =  savings=  SLF  Exp.Fut.Inc. =  savings=  SLF DLF SLF1 RIR LF SLF2

FORMULAS-Chapter 26 (Chapter 10); Loanable Funds Market PDLF LF SLF DLF Govt Deficit RIR DLF RIR LF PSLF SLF Govt Surplus Govt surplus ADDS to Private savings =  RIR  Qty of private savings  Qty of loanable funds  Investment Govt deficit ADDS to Private demand for loans =  RIR  Qty of private funds supplied  Qty of loanable funds  Investment NI = GI - Depreciation Asset Price  = Interest Rate  SLF = PSLF + GSLF

FORMULAS- Chapter 27 (Chapter 11) M1 = Currency + checkable deposits + travelers checks Not Money: $ inside banks, reg & e-checks, credit/debit cards M2 = M1 + savings, time, & other deposits, money mktfunds Money multiplier: [C=Currency Drain / R=Desired Reserve] 1 + C R + C

FORMULAS- Chapter 28 (Chapter 12) NIR=RIR + inflation rate MD  NIR =  qty MD  PL =  MD  RGDP =  MD  Financial Technology =  Money Demand  ATMs =  MD  Credit Cards =  MD MS  RRR =  MS  Disc rate =  MS Selling Securities =  MS  MS = banks make smaller or less loans  MS = people deposit less money  V =  inflation rate Inflation Rate = $ growth + Velocity growth – RGDP growth Velocity = (PL x RGDP) / qty of money PL = GDP deflator / 100 LONG RUN: Fed makes Open Mkt purchase   Qty $   NIR   RIR   borrowing/investing (spending habits change)  change in production and prices Thus, Shortrun NIR adjusts, Longrun PL adjusts Shortrun   MS =  IR // Long run   PL and NIR returns MD1 MS NIR QM MS2

FORMULAS- Chapter 29 (Chapter 13) AS  PL =  qty S RGDP b/c of  RWR  Pot. GDP =  AS  MWR=  AS  Money price of other resource =  AS AD  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) Inflation Rate = $ growth + Velocity growth – RGDP growth Velocity = (PL x RGDP) / qty of money PL = GDP deflator / 100 LONG RUN:  price level   MD   NIR   RIR   spending   qty RGDP demanded   AD  price level   RWR  exchange rate (from 100yen to 125 yen for $1) = cheaper foreign goods (12,500yen goes from $125 to $100) =  imports (we buy more of their goods) =  AD (and less of ours) AD AS1 PL RGDP AS2

DLF RIR LF PSLF SLF MC MB PPF Good x Good y LS LD PF RGDP RWR Labor MS MD NIR QM AD PL RGDP AS S D P Q LS LD RWR Labor DLF RIR LF SLF Surplus Market effecting Price Floor shortage, Market effecting Price Ceiling Goods & ServicesLabor Loanable Funds Surplus PDLF LF SLF DLF Deficit RIR