JB's AP MACROECONOMICS
Unit 2
Economic Indicators and the Business Cycle
Business Cycle
MACROECONOMIC MEASUREMENTS, MULTIPLIERS, AND OTHER MACRO FORMULAS
GROSS DOMESTIC PRODUCT (GDP)
Expenditures Approach:
C + I + G + Xn (X-M)
C - Consumption ;
I - Investment Spending ;
G = Government Spending ;
Xn - Net Export Spending (Exports - Imports)
Income Approach:
National Income (Wages + Rent + Interest + Profit) + (Indirect Taxes - Subsidies) + Depreciation + Net Foreign Factor Income + Statistical Adjustments
Value-Added Approach:
Value of Final Goods and Services - Value of Intermediate Goods
CALCULATING GDP
Nominal GDP = Real GDP x GDP Deflator (price index)(in hundredths)
If the Real GDP is $200 billion and the GDP Deflator is 120, then multiply $200 billion by 1.20.
$200B x 1.20 = $240B.
Nominal GDP is $240 billion.
Real GDP = (Nominal GDP / GDP Deflator) x 100
If the Nominal GDP is $300 billion and the GDP Deflator is 150, then divide $300 billion by 150 and multiply by 100.
($300B / 150) = $2B x 100 = $200B.
Real GDP is $200 billion.
GDP Deflator = (Nominal GDP / Real GDP) x 100
If the Nominal GDP is $100 billion and the Real GDP is $80 billion, then divide $100 billion by $80 billion and then multiply by 100.
($100B / $80B) = 1.25 x 100 = 125.
GDP Deflator is 125.
GDP Growth Rate = [(rGDPnew - rGDPold) / rGDPold] x 100
If the 2000 GDP is $1200 and the 2001 GDP is $1600, then subtract $1600 and $1200 and then divide by $1200 and then multiply by 100.
($1600 - $1200) = $400
$400 / $1200 = 33 x 100 = 33%
The GDP Growth Rate is 33%.
GDP per Capita = Real GDP / population
If the Real GDP is $2 billion and the population is 200 million, then divide $2 billion by 200 million.
$2,000,000,000 / 200,000,000 = 100.
INFLATION
Consumer Price Index (CPI) = (current price / base price) x 100
If the cost of a market basket of goods for 2001 is $10,000 and the cost of a market basket of goods for 2002 is $12,000 and the base year is 2001, then divide $12,000 by $10,000 and then multiply by 100.
$12,000 / $10,000 = 1.2 x 100 = 120
The CPI for 2002 is 120.
Inflation Rate = [(CPInew - CPIold) / CPIold] x 100
If the CPI for 2001 is 100 and the CPI for 2002 is 120, then subtract 120 from 100 then divide by 100 and then multiply by 100.
120 - 100 = 20
20 / 100 = 0.2 x 100 = 20
The Inflation Rate is 20%.
Converting Inflation:
PRICE/VALUE(current) = PRICE/VALUE(past) x ( CPI(current) / CPI(past) )
UNEMPLOYMENT
Unemployment Rate = (# of unemployed / # in the labor force) x 100
Labor Force Participation Rate = (# in the labor force / 16+ civilian population) x 100
FISHER'S HYPOTHESIS / EQUATION
Real Rate + Expected Rate of Inflation = Nominal Rate
MARGINAL PROPENSITY TO CONSUME AND SAVE AND THE SPENDING MULTIPLIER
MARGINAL PROPENSITY TO CONSUMER (MPC)
∆C/∆DI
MARGINAL PROPENSITY TO SAVE (MPS)
∆S/∆DI
MPC + MPS = 1
SPENDING MULTIPLIER
1/MPS
∆GDP/∆Spending
TAX MULTIPLER
-MPC/MPS
∆GDP/∆Taxes
TRANSFER MULTIPLER
MPC/MPS
∆GDP/∆Transfer Payments
BALANCED-BUDGET MULTIPLIER = 1
EconReview - Jacob Reed
Topic 2.1 and Topic 2.2 Gross Domestic Product and Circular Flow
Topic 2.4 and Topic 2.5 Price Indices, Inflation, and Costs of Inflation
Topic 2.6 Real and Nominal Values
La Money Productions
Topic 2.1 and Topic 2.2 Gross Domestic Product
Topic 2.4 Price Indices and Inflation
Topic 2.6 Real and Nominal Values
ACDC - Mr. Clifford's Video Reviews
Macroeconomics Measurement: GDP, Inflation, Unemployment
NOTE: For Spending and Tax Multipliers, see ACDC Unit 3 Macroeconomics
Crash Course Economics (with Adriene Hill and Jacob Clifford)
Unit 2 Macroeconomics - Macroeconomic Measurement