Mgea06 Formulas

MGEA06 Formulas
Week 1: Intro & Data of Macroeconomics
𝐆𝐃𝐏 = C + I + G + EX − IM
Value added = value of sales – value of the purchases of intermediate goods and services
Investment (I) = Private Investment + Public Investment

= Business fixed investment + Residential investment + (physical) Inventory investment
GNP = GDP + Net factor income earned abroad

= GDP + Income earned by Canadian outside of Canada – Income earned by foreigners in Canada.
Nominal GDP (NGDP) = Current Year Price × Current Year Quantity
Real GDP (RGDP) = Base Year Price × Current Year Quantity
RGDP
𝐑𝐞𝐚𝐥 𝐆𝐃𝐏 𝐩𝐞𝐫 𝐜𝐚𝐩𝐢𝐭𝐚 = Population
Cost of basket = Current Year Price × Base Year Quantity
CPI in year t = (Cost of basket in year t / Cost of basket in base year) × 100
GDP Deflator in year t = (NGDP in year t/RGDP in year t) × 100
Week 2: Unemployment and Inflation
Labour Force (LF) = # of employed + # of unemployed
Labour Force Participation Rate (LFPR) = labor force

adult population
× 100%
Unemployment Rate (ur) = # of unemployed

labor force
× 100%
Employment Rate (er) = # of employed

adult population
× 100%
Natural Unemployment (NRU) = Frictional Unemployment + Structural Unemployment
Actual Unemployment = Natural Unemployment + Cyclical Unemployment
NRU = Level of frictional unemployment+Level of structural unemployment

Labor force
× 100%
Page 1 of 4
Inflation rate t, 𝝅𝒕 =
price level in year t−price level in year (t−1)
price level in year (t−1)
× 100%
Price index = NGDP

RGDP
× 100
RGDP = NGDP
Price Index
× 100
NGDP per capita = NGDP

Population
RGDP per capita = NGDP per capita

CPI
× 100
Fisher equation: Nominal interest rate (i) = Real interest rate (r) + Inflation Rate (𝜋𝑡 )
Week 3: Long-Run Economic Growth
Rule of 70 – #of years for a variable to double = 70

Annual Growth rate of variable
Output per worker (y) = Average product of labour (APL) = RGDP

# of workers (labor force)
= 𝑌𝐿
Per-worker production function: 𝑦 = 𝐴 × 𝑓 (𝑘, ℎ) = 𝐴𝑘𝛼 ℎ(1−𝛼)

(𝛼 = capital share of income; 1 − 𝛼 = labor share of income)
Positive MPk: marginal product of physical capital = 𝛼𝐴𝑘𝛼−1 ℎ1−𝛼
Positive MPh: marginal product of human capital = (1 − 𝛼)𝐴𝑘𝛼 ℎ−𝛼
Growth accounting equation using per-worker function:

∆𝑦 ∆𝐴 ∆𝐾 ∆ℎ
= + 𝛼( ) + (1 − 𝛼) ( )
𝑦 𝐴 𝐾 ℎ
∆𝐴
𝐴
= total factor productivity (TFP) growth
𝛼 = capital share of income
𝛼(∆𝐾
𝐾
) = contribution of capital to production function growth
(1 − 𝛼) = human capital share of income
(1 − 𝛼)(∆ℎ
ℎ
) = contribution of human capital to production function growth
Page 2 of 4
Week 4: Savings, Investment Spending and Financial System
SNational = Sprivate + Spublic = Y – C – G = I
Sprivate = [ Output (Y) – Taxes (T) + Transfers (TR) ] – Consumption (C) = Y – T + TR – C
Disposable income (YD) = Y – T + TR
SPublic = Government budget balance (GBB) = T – TR – G
NFI = X – IM = NX
= Purchase of foreign assets from foreigners – Sales of domestic assets to foreigners
= financial capital outflows – financial capital inflows
NPV of an investment = PV of the return on this investment – PV of the cost of this investment
PV = ∑nt=1[ payment at time t × (1 + i)−t ]
Coupon Payment (per period) = Face Value × Coupon rate (stated rate)
Week 5: Income and Expenditure
Disposable income (YD) = Y – T + TR = C + Sprivate
MPC = ∆ consumption
∆ disposable income
∆C
= ∆YD
∆Sprivate
MPS = ∆ Private Saving
∆ disposable income
= ∆YD
Income-Expenditure Equilibrium
Planned aggregate expenditure: AEplanned = C + Iplanned + G + X – IM
National income: Y = C + IActual + G + X – IM
IActual = Iplanned + Iunplanned
Y = AEplanned + Iunplanned
Multiplier (M) = ∆Y
∆AE0
Page 3 of 4
Week 9: Money, Banking and the Central Banking System
Reserve ratio (rr) = Bank Reserves

deposit
Demand deposit ratio (DD) = 1

rr
× reserves
MS = Currency in circulation (CC) + Demand Deposits (DD)
MB (monetary base) = Currency in circulation + Bank reserves
Money multiplier = money supply

monetary base
= MS
MB
Week 10: Monetary Policy
Quantity Equation (long-run neutrality of money): M × V = P × Y

M: Money Supply; V: Velocity of money; P: Price level; Y:RGDP
Week 11: Open-Economy Macroeconomics (Part 1)
Current Account (CA) = Net exports of goods (merchandise trade balance) + Net exports of
services + Net factor income + Net international transfer payments
Financial Account (FA) = Exports of assets – Imports of assets

= Capital inflows – Capital outflows
= Net Capital Inflows
Balance of Payments (BOP) = CA + FA = 0 => CA = – FA
Page 4 of 4

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MGEA06 Formulas

Week 1: Intro & Data of Macroeconomics

Investment (I) = Private Investment + Public Investment

GNP = GDP + Net factor income earned abroad

Nominal GDP (NGDP) = Current Year Price × Current Year Quantity

Real GDP (RGDP) = Base Year Price × Current Year Quantity

Cost of basket = Current Year Price × Base Year Quantity

GDP Deflator in year t = (NGDP in year t/RGDP in year t) × 100

Week 2: Unemployment and Inflation

Labour Force (LF) = # of employed + # of unemployed

Labour Force Participation Rate (LFPR) = labor force

Unemployment Rate (ur) = # of unemployed

Employment Rate (er) = # of employed

Natural Unemployment (NRU) = Frictional Unemployment + Structural Unemployment

Actual Unemployment = Natural Unemployment + Cyclical Unemployment

NRU = Level of frictional unemployment+Level of structural unemployment

Price index = NGDP

NGDP per capita = NGDP

RGDP per capita = NGDP per capita

Week 3: Long-Run Economic Growth

Rule of 70 – #of years for a variable to double = 70

Output per worker (y) = Average product of labour (APL) = RGDP

Per-worker production function: 𝑦 = 𝐴 × 𝑓 (𝑘, ℎ) = 𝐴𝑘𝛼 ℎ(1−𝛼)

Growth accounting equation using per-worker function:

SNational = Sprivate + Spublic = Y – C – G = I

Sprivate = [ Output (Y) – Taxes (T) + Transfers (TR) ] – Consumption (C) = Y – T + TR – C

Disposable income (YD) = Y – T + TR

SPublic = Government budget balance (GBB) = T – TR – G

Week 5: Income and Expenditure

Disposable income (YD) = Y – T + TR = C + Sprivate

Reserve ratio (rr) = Bank Reserves

Demand deposit ratio (DD) = 1

MS = Currency in circulation (CC) + Demand Deposits (DD)

MB (monetary base) = Currency in circulation + Bank reserves

Money multiplier = money supply

Week 10: Monetary Policy

Quantity Equation (long-run neutrality of money): M × V = P × Y

Week 11: Open-Economy Macroeconomics (Part 1)

Financial Account (FA) = Exports of assets – Imports of assets

Balance of Payments (BOP) = CA + FA = 0 => CA = – FA

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