List of Formulas for Midterm Exam 2

Fei Tan

Note: this list provides selective though not exhaustive formulas that you are expectedto know in preparation for Midterm Exam 2 (Chapter 10 and 11). The actual formulasthat will be helpful for solving problems in this exam should be a proper set of this list.Good luck!

1. Standard of living can be measured by real GDP per capita:

real GDP per capita =real GDP

population size(1)

2. The slope of per-worker productions function can be computed as:

slope =change in real GDP per hour worked

change in capital per hour worked(2)

3. Aggregate expenditure (AE) can be computed as:

AE = C + I +G+NX (3)

where I denotes planned investment.

4. Macroeconomic equilibrium occurs whenever:

aggregate expenditure = GDP (4)

5. The slope of the consumption function, or the marginal propensity to consume (MPC), can becomputed as:

MPC =change in consumption

change in disposable income=

C

Y D(5)

6. A variant of formula for MPC is change in consumption induced by change in disposable income:

change in consumption = change in disposable incomeMPC (6)7. Remember the following relationship:

GDP national income = disposable income + net taxes (7)8. Relation between MPC and marginal propensity to save (MPS):

1 = MPC + MPS =C

Y+

S

Y(8)

where Y denotes change in national income, C denotes change in consumption, and Sdenotes change in saving.

9. A formula for multiplier:

multiplier =change in equilibrium real GDP

change in autonomous expenditure=

1

1MPC (9)

10. A variant of formula for multiplier is change in equilibrium real GDP induced by change inautonomous expenditure:

change in equilibrium real GDP = change in autonomous expenditure 11MPC (10)

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