# Equations that can be used on the exam.

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30 Nov 2010
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SOME IMPORTANT EQUATIONS
x Labour force = number of employed + number of unemployed
x Unemployment rate = number of unemployed รท labour force ร 100%
x Employment rate = number of employed รท adult population ร 100%
x Labour-force participation rate = labour force รท adult population ร 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 โข B1 = Price from period 1 โข Quantity from period 1
o Cost of Period-1 Bundle in Period 2 = P2 โข B1 = Price from period 2 โข Quantity from period 1
o Prices Risen = (Period-1 Bundle in Period 2 โ Period-1 Bundle in Period 1) รท Period-1 Bundle in Period 1 ร 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 โข B2 = Price from period 1 โข Quantity from period 2
o Cost of Period-2 Bundle in Period 2 = P2 โข B2 = Price from period 2 โข Quantity from period 2
o Prices Risen = (Period-2 Bundle in Period 2 โ Period-2 Bundle in Period 1) รท Period-2 Bundle in Period 1 ร 100%
x Using CPI to Calculate the % Change in Price
o Cost of Base-Year Bundle in Period 1 = P1 โข B1 = Price from period 1 โข Quantity from period 1
o Cost of Base-Year Bundle in Period 2 = P2 โข B1 = Price from period 2 โข Quantity from period 1
o CPI: CPI1 = (P1 โข B1) รท (P1 โข B1) ร 100%
CPI2 = (P2 โข B1) รท (P1 โข B1) ร 100%
o % Change in Prices = (CPI2 โ CPI1) รท CPI1 ร 100%
x Using GDP Deflator to Calculate the % Change in Price
o Cost of Current-Year Bundle in Period 1 = P1 โข B2 = Price from period 1 โข Quantity from period 2
o Cost of Current-Year Bundle in Period 2 = P2 โข B2 = Price from period 2 โข Quantity from period 2
o GDP Deflator: GDPD1 = (P1 โข B2) รท (P1 โข B2) ร 100%
GDPD2 = (P2 โข B2) รท (P1 โข B2) ร 100%
o % Change in Prices = (GDPD2 โ GDPD1) รท GDPD1 ร 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 โ intermediates purchased by firm
x Net National Product (NNP) = Gross National Product โ Depreciation = GNP โ CCA
x GNP = GDP + Net factor income earned abroad (NFIEA)
x Nominal GDPt = Pt โข Bt
x Real GDPt = PBase-year โข 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 โ IM
x Demand (AD) = desired expenditure = AD = C + I + G + X โ 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 โ 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 โ dr, where I0 = autonomous investment
d = รปI / รปr = constant
x National saving (NS) = Y โ C โ G
x Private savings (SP) = DI โ C = Y โ T + TR โ C
x Public savings (SG) = T โ TR โ G
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## Document Summary

Labour force = number of employed + number of unemployed. N unemployment rate = number of unemployed labour force 100% Employment rate = number of employed adult population 100% Labour-force participation rate = labour force adult population 100% Prices risen = (period-1 bundle in period 2 period-1 bundle in period 1) period-1 bundle in period 1 100% Prices risen = (period-2 bundle in period 2 period-2 bundle in period 1) period-2 bundle in period 1 100% Cpi2 = (p2 b1) (p1 b1) 100: % change in prices = (cpi2 cpi1) cpi1 100% Gdpd2 = (p2 b2) (p1 b2) 100% Income = factor incomes + non-factor payments: % change in prices = (gdpd2 gdpd1) gdpd1 100% N rule of 72: 72 / x% = number of years needed for a number to double. N gdp from the expenditure approach = c + i + g + nx. N value added = output of every firm in canada intermediates purchased by firm.