Key Equations and Conditions in Macroeconomics

Aggregate Demand (AD)

• Formula: AD = C + I + G + (X - M)
  • C: Consumption
  • I: Investment
  • G: Government Spending
  • X - M: Net Exports

Calculating GDP

• Nominal GDP:
  • Three methods: Output, Income, Expenditure
    • Output Method: Final value of all goods/services produced
    • Income Method: Sum of all factor incomes (wages, rent, profit, interest)
    • Expenditure Method: AD (C + I + G + X - M)
• Real GDP:
  • Formula: Nominal GDP / Price Index × 100
  • Price Index examples: CPI, GDP Deflator
• GDP Deflator:
  • Formula: Nominal GDP / Real GDP × 100

Gross National Income (GNI)

• Formula: GNI = GDP + Net Factor Income
  • Net Factor Income: Income from domestic factors abroad minus foreign income domestically

Green GDP

• Formula: Green GDP = GDP - Environmental Costs

Circular Flow and Macro Equilibrium

• Injections: I + G + X
• Leakages: Savings + Taxation + Imports
• Equilibrium: Injections = Leakages
  • Economic Growth: Injections > Leakages
  • Negative Growth: Injections < Leakages

Multiplier Effect

• Multiplier:
  • Formula 1: 1 / (1 - MPC)
  • Formula 2: 1 / MPW
    • MPW: MPS + MPT + MPI
• Change in National Income: Initial Injection × Multiplier

Accelerator Effect

• Increase in GDP growth rate leads to higher investment and further GDP growth

Budget Balance

• Budget Deficit: Govt. spending > Tax revenue (within a fiscal year)
• Budget Surplus: Tax revenue > Govt. spending

Unemployment Rate

• Formula: (Number of Unemployed / Labor Force) × 100
  • Labor Force: Employed + Unemployed

Index Numbers

• Formula: (Number to Convert / Base Year Number) × 100

Percentage Change

• Formula: (Difference / Original Number) × 100

Weighted Price Index

• Convert prices to index, multiply by weights, sum weighted prices, divide by total weights

Real Interest Rate

• Formula: Nominal Interest Rate - Inflation Rate

Taxation in Progressive Systems

• Taxable Income: Total Income - Tax-free Allowance
• Average Tax Rate: (Income Tax Paid / Total Income) × 100
• Marginal Tax Rate: (Change in Tax Paid / Change in Income) × 100

Gini Coefficient

• Formula: Area between Line of Perfect Equality and Lorenz Curve / Total Area under Line of Perfect Equality

Poverty

• Absolute Poverty: Income < $2.15/day
• Relative Poverty: Income < 60% of Median Income

Balance of Payments

• Current Account Deficit = Financial + Capital Account Surplus
• Current Account Surplus = Financial + Capital Account Deficit

Marshall-Lerner Condition

• For currency depreciation to improve current account deficit: PED of X + PED of M > 1

Terms of Trade

• Formula: (Export Price Index / Import Price Index) × 100

Human Development Index (HDI) Scores

• Very High: ≥ 0.8
• High: 0.7 - 0.79
• Medium: 0.55 - 0.69
• Low: < 0.55

Yield on a Bond

• Formula: (Coupon Rate / Market Price of Bond) × 100

Money Multiplier

• Formula: 1 / Reserve Requirement (R)

Quantity Theory of Money (Fisher Equation)

• Formula: MV = PQ
  • M: Money Supply
  • V: Velocity of Circulation
  • P: Average Price Level
  • Q: Real GDP
  • Classical Assumption: V and Q are fixed

Financial Market Ratios

• Liquidity Ratio: (Current Assets / Current Liabilities) × 100
• Capital Ratio: (Capital / Loans) × 100

These formulas and concepts are essential for mastering macroeconomics and performing well in exams.