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Final

Equations that can be used on the exam.


Department
Economics for Management Studies
Course Code
MGEA06H3
Professor
Iris Au
Study Guide
Final

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SOME IMPORTANT EQUATIONS
x Labour force = number of employed + number of unemployed
x Unemployment rate = number of unemployed ÷ labour force × 100%
x Employment rate = number of employed ÷ adult population × 100%
x Labour-force participation rate = labour force ÷ adult population × 100%
x Using the Period-1 Bundle (hold quantity fixed to period 1) to Calculate the % Change in Price
o Cost of Period-1 Bundle in Period 1 = P1 • B1 = Price from period 1 • Quantity from period 1
o Cost of Period-1 Bundle in Period 2 = P2 • B1 = Price from period 2 • Quantity from period 1
o Prices Risen = (Period-1 Bundle in Period 2 – Period-1 Bundle in Period 1) ÷ Period-1 Bundle in Period 1 × 100%
x Using the Period-2 Bundle (hold quantity fixed to period 2) to Calculate the % Change in Price
o Cost of Period-2 Bundle in Period 1 = P1 • B2 = Price from period 1 • Quantity from period 2
o Cost of Period-2 Bundle in Period 2 = P2 • B2 = Price from period 2 • Quantity from period 2
o Prices Risen = (Period-2 Bundle in Period 2 – Period-2 Bundle in Period 1) ÷ Period-2 Bundle in Period 1 × 100%
x Using CPI to Calculate the % Change in Price
o Cost of Base-Year Bundle in Period 1 = P1 • B1 = Price from period 1 • Quantity from period 1
o Cost of Base-Year Bundle in Period 2 = P2 • B1 = Price from period 2 • Quantity from period 1
o CPI: CPI1 = (P1B1) ÷ (P1 • B1) × 100%
CPI2 = (P2 • B1) ÷ (P1 • B1) × 100%
o % Change in Prices = (CPI2 – CPI1) ÷ CPI1 × 100%
x Using GDP Deflator to Calculate the % Change in Price
o Cost of Current-Year Bundle in Period 1 = P1B2 = Price from period 1 • Quantity from period 2
o Cost of Current-Year Bundle in Period 2 = P2B2 = Price from period 2 • Quantity from period 2
o GDP Deflator: GDPD1 = (P1 • B2) ÷ (P1 • B2) × 100%
GDPD2 = (P2 • B2) ÷ (P1 • B2) × 100%
o % Change in Prices = (GDPD2GDPD1) ÷ GDPD1 × 100%
x Rule of 72: 72 / x% = number of years needed for a number to double
x GDP from the expenditure approach = C + I + G + NX
x Income = factor incomes + non-factor payments
x Value added = output of every firm in Canada intermediates purchased by firm
x Net National Product (NNP) = Gross National Product – Depreciation = GNP – CCA
x GNP = GDP + Net factor income earned abroad (NFIEA)
x NFIEA = Factor income earned by Canadians outside Canada – Factor income earned by non-Canadians in Canada
x Nominal GDPt = Pt • Bt
x Real GDPt = PBase-year • Bt
x Real GDP should equal Nominal GDP in the base year
x To get GDP in year B into year A prices:
x Supply = actual expenditure = actual national income = GDE = C + I + G + X – IM
x Demand (AD) = desired expenditure = AD = C + I + G + X – IM except unexpected changes in inventories
x The key is investment (I) in GDE includes unintended change in inventories while I in AD includes only intended investment.
x The underlying model is given by:
AE = AE0 + cYY
where AE = aggregate expenditure = aggregate demand
AE0 = autonomous expenditure = constant
c
Y = d AE / d Y = constant, 0 < cY < 1
Y = GDP = output = income
x A single consumption function:
C = C (DI), where DI = disposable income = Y – T + TR
C = C0 + C1DI, where C0 = autonomous consumption
C1 = marginal propensity to consumer out of DI = MPC
x A simple investment function:
I = I (r), where r = real interest rate
I = I0 dr, where I0 = autonomous investment
d = ûI / ûr = constant
x National saving (NS) = Y – CG
x Private savings (SP) = DI – C = Y – T + TR – C
x Public savings (SG) = T – TR – G
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