MACRO Unit 2 Presentation.pptx

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