Equations Cheat Sheet

Expenditures Approach: GDP = Consumption (C) + Gross Private Domestic

Investment (Ig) + Government Purchases (G) + Net Exports (Xn)

Income Approach: GDP = National Income - Net Foreign Factor Income +

Statistical Discrepancy + Consumption of Fixed Capital (Depreciation)

National Income (NI) = Wages + Rents + Interest + Proprietors’ Income +

Corporate Profits + Taxes on Production and Imports.

National Income (NI) = NDP - Statistical Discrepancy + Net Foreign Factor

Income.

NDP = GDP - Depreciation

Personal Income (PI) = NI - Taxes on Production and Imports - Social Security

Contributions - Corporate Income Taxes - Undistributed Corporate Profits + Transfer
Payments

Disposable Income (DI) = PI - Personal Taxes

price of market basket in year Y

Price Index in Year Y =
×100 =
price of same market basket in base year

nominal GDP in year Y

real GDP in year Y

nominal GDP
Real GDP = price index (in hundredths)

70
Rule of 70: Approx. # of Years to Double = annual percentage rate of growth

unemployed
Unemployment Rate =
×100
labor force

GDP Gap = actual GDP - potential GDP

Consumer Price Index (CPI) =

price of the most recent market basket in a particular year
× 100
price estimate of the same market basket in 1982-1984
 nominal income
Real Income = price index (in hundredths)

% Change in Real Income ≈ % Change in Nominal Income - % Change in Price

Level

Nominal Interest Rate = Real Interest Rate + Inflation Premium (Expected

Inflation)

Saving (S) = Disposable Income (DI) - Consumption (C)

Consumption (C )
Average Propensity to Consume (APC) = Disposable Income (DI)

Saving (S)
Average Propensity to Save (APS) = Disposable Income (DI)

APC + APS = 1

Change in Consumption
Marginal Propensity to Consume (MPC) = Change in Income

Change in Saving
Marginal Propensity to Save (MPS) = Change in Income

MPC + MPS = 1

Change in real GDP 1 1

Multiplier = Initial Change in Spending = MPS = 1−MPC

Equilibrium GDP (Private Closed Economy) = Consumption (C) + Gross Private

Domestic Investment (Ig)

Equilibrium GDP (Private Open Economy) = C + Ig + Net Exports (Xn)

Equilibrium GDP (Public Open Economy) = C + Ig + Xn + Government

Purchases (G)

total input cost

Per-Unit Production Cost = units of output

total output
Productivity = total input