1. Optimal decision making: MB = MC
2. Opportunity cost from a production possibility curve or frontier (PPC or PPF):
Good X: The slope of the PPC
Good Y: The inverse of the slope of the PPC
1. Market equilibrium:
Q d = Q s
2. Shortage:
Q d – Q s
3. Surplus:
Q s – Q d
4. Total welfare:
= Consumer surplus + Producer surplus
1. Nominal GDP:
= Current year production × Current year prices
2. Real GDP:
3. Aggregate spending (GDP):
= C + I + G + (X – M )
4. Disposable income (DI):
= Gross income – Net taxes
5. Net taxes:
= Taxes paid – Transfers received
6. %Δ real GDP:
= %Δ nominal GDP – %Δ price index
7. Price index current year:
= 100 × (Spending current year)/(Spending base year)
8. Consumer inflation rate:
= 100 × (CPINew – CPIOld )/CPIOld
9. Real Income:
= (Nominal income)/CPI (in hundredths)
10. Nominal interest rate:
= Real interest rate + Expected inflation
11. Labor force:
= Employed + Unemployed
12. Unemployment rate:
= 100 × (Unemployed/Labor force)
1. Consumption function:
C = Autonomous consumption + MPC(DI)
2. Saving function:
S = Autonomous savings + MPS(DI)
3. Marginal propensity to consume (MPC):
= ΔC /ΔDI = Slope of consumption function
4. Marginal propensity to save (MPS):
= ΔS /ΔDI = Slope of saving function
5. MPC + MPS = 1
6. Net exports (X – M ):
= Exports – Imports
7. Equilibrium in the loanable funds market:
S = I
8. Spending multiplier:
= 1/(1 – MPC) = 1/MPS
= (Δ GDP)/(Δ spending)
9. Tax multiplier (Tm):
= MPC × (Spending multiplier) = MPC/MPS
= (Δ GDP)/(Δ taxes)
10. Balanced-budget multiplier = 1
1. Macroeconomic short-run equilibrium
AD = SRAS
2. Macroeconomic long-run equilibrium
AD = SRAS = LRAS
3. Recessionary gap:
= Full employment GDP – Current GDP
4. Inflationary gap:
= Current GDP – Full employment GDP
1. Budget deficit:
= Government spending – Net taxes
2. Budget Surplus:
= Net taxes – Government spending
1. M 1 measure of money:
= Cash + Coins + Checking Deposits + Traveler’s checks
2. M 2 measure of money:
= M 1 + Savings deposits + Small (e.g., under $100,000 CDs) time deposits + Money market deposits + Money market mutual funds
3. Present value (PV) of $1 received a year from today:
= $1/(1 + r )
4. Future Value (FV) of $1 invested today at interest rate r for one year = $1 × (1 + r )
5. Money demand:
= Transaction demand + Asset demand
6. Equilibrium in the money market:
MS = MD
7. Reserve ratio (rr )
= Required reserves/Total deposits
8. Simple money multiplier:
= 1/rr
1. Equilibrium in the currency ($) market:
Q d for the $ = Q s of the $
2. Revenue from a tariff: