Macroeconomic formulas/MCQ points

Question 1

How do you calculate increase in real GDP…

Answer 1

increase in Real GDP = increase in nominal GDP - rate of price inflation

(Answer is in % and may be a minus %).

Question 2

How do you calculate latest year real GDP?

Answer 2

Latest year nominal GDP / latest year price index (x 100)

(Answer is in £)

changes in real GDP are expressed with index numbers.

Question 3

How do you calculate current year economic growth?

Answer 3

Current year economic growth = current year real GDP - previous year real GDP / previous year nominal GDP x 100

Question 4

How do you calculate MPC?

Answer 4

change in consumption / change in income

Question 5

What’s Fisher’s Equation of Exchange?

Answer 5

money supply x velocity of money = price level x aggregate transactions.

MV = PT

Question 6

How is GDP per capita calculated?

Answer 6

Total GDP / Population size

Question 7

How do you calculate real exchange rate?

Answer 7

nominal exchange rate x price lvl in a country / price lvl abroad

Question 8

How do you calculate the multiplier from the MPC?

Answer 8

1/1-MPC

e.g.
-> Govt. injection £100m,
-> Everytime income is generated, 80% of that income is spent,
-> So, £80m will be spent, (cycle goes on)
-> MPC = 0.8
-> Then, 1/1-0.2 = 5
> Can be shown by a right shift from AD1 -> AD3 on a Keynasian curve

Question 9

How do u calculate the multiplier from the MPW?

Answer 9

1/MPW

Question 10

How to calculate inflation rate…

Answer 10

new - orig /orig (x100)

Answer is in 5%!

Question 11

How to calculate GNI…

Answer 11

GDP + net factor income
Calculating net factor income =
Income earned by domestic FoPs abroad - Any income earned by foreign FoPs domestically

Question 12

How to calculate green GDP…

Answer 12

GDP - environmental costs

Question 13

HOW IS nominal GDP calculated with a table/values?

!!!

Answer 13

Current year NGDP = (P of product A current year x Q of product A current year) + (P of product B current year x Q of product B current year)

(annotate ahead)

nominal GDP

Question 14

How is Real GDP calculated with a table/values?

!!!

Answer 14

current year RGDP = (P of product A base year x Q of product A current year) + (P of product B base year x Q of product B current year)

Note: Base year RGDP = Base year NGDP

Question 15

How is the GDP deflator calculated with a table/values?

!!!

Answer 15

NGDP / RGDP x 100

Question 16

How do you calculate inflation rate with a table/values?

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Answer 16

GDP deflator (current year) - GDP deflator (previous year) / GDP deflator (previous year) x 100

(Leave out finding base year)

Question 17

How do you calculate economic growth rate?

!!!

Answer 17

RGDP (current year) - RGDP (previous year) / RGDP (previous year) x 100

(Leave out finding base year)

Question 18

Cost of basket in current year calculation…

!!!

Answer 18

P(a) x Q(b) of product A + P(a) x (b) of product B

Question 19

CPI calculation

!!!

Answer 19

cost of basket (current year) / cost of basket (base year) x 100

(base year CPI = 100)

Question 20

Calculating inflation rate with CPI…

Answer 20

Current CPI - Previous CPI / Previous CPI x 100

(Leave finding base year inflation rate)

Question 21

How to calculate yield…

(For a bond)

Answer 21

Yield = coupon / market price x 100

(Bond’s yield is the annual return an investor will get from the bond)

The lower the bond price, the higher the yield and vice versa.

Question 22

Calculate terms of trade index…

Answer 22

terms of trade index = index of average price of exports / index of average price of imports (x100)

Question 23

Current account balance formulas…

Answer 23

-> Balances for trade = imports - exports
-> Balances for investment income and transfers = debits - credits
-> For the overall current account balance, add up all balances (positive balance is a surplus, negative balance is a deficit)

Question 24

Formula for calculating inflation rate…

Answer 24

(Change in CPI/Original CPI) x 100

(+100 to adapt to base year)

Question 25

A left shift in AD leads to…

(UK financial crisis)

Answer 25

• Negative output gap and cyclical unemployment

(With additional LRAS curve and SRAS curve)

Question 26

AD calculation…

Answer 26

C + I + G + (X-M)

(Same calculation for calculating real GDP via the expenditure method)

Question 27

NGDP calculation…

(Income method)

Answer 27

Adding up factor incomes e.g. wages, salary etc

Question 28

NGDP output method…

Answer 28

• Add up the final value of all goods and services in an economy

Question 29

Calculating real GDP…

Answer 29

NGDP / Price index x 100

(Price index could be CPI or GDP deflator)

Question 30

How to calculate the GDP deflator…

Answer 30

NGDP / RGDP x 100

Question 31

Change in national income…

Answer 31

Initial injection x multiplier

Question 32

Calculate unemployment rate

Answer 32

No. of unemployed / labour force x 100

Question 33

Calculate index number…

(For converting prices to index)

Answer 33

Raw number / raw number in a base year x 100

(Raw number = number you want to convert)

Question 34

Percentage change…

Answer 34

change - orig / orig x 100

Question 35

Calculate a weighted price index…

(e.g a weighted CPI)

Answer 35

1. Convert prices to index
2. Multiply index prices by weights
3. Add up weighted prices
4. Divide by total number of weights

Question 36

Calculate real interest rate…

Answer 36

Nominal interest rate - inflation rate

Question 37

Calculate taxable income

Answer 37

Income - Tax free allowance

Question 38

Calculate average rate of tax

Answer 38

Tax paid / income x 100

Question 39

Calculate marginal rate of tax…

Answer 39

Change in tax paid / change in income x 100

Question 40

Calculate the bond yield…

Answer 40

Coupon / market price x 100

Question 41

Calculate the capital ratio

Answer 41

Capital / loans x100

Question 42

Calculate the liquidity ratio

Answer 42

Current assets / Current liabilities x 100