# MGEA06H3 Study Guide - Final Guide: Producer Price Index, Autarky, Net Present Value

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University of Toronto Winter 2016

at Scarborough

Introduction to Macroeconomics: A mathematical Approach

(Formulas Sheet)!

Important Formulas:

1. GDP = C + I + G + NX (E - IM)

2. GNP = GDP + Income earned by Canadian outside of Canada - Income earned by foreigners in Canada

3. GNP = GDP + Net Factor Income Earned Abroad

4. Real GDP = fixed price in a base year x current year quantity

(* when we are trying to have an accurate measure of economic growth, we look Real GDP )

5. Nominal GDP = current year price x current year quantity

6. Real GDP per capital = Real GDP / Population

A) Two formulas to evaluate price index:

1. GDP Deflator = Nominal GDP / Real GDP × 100

(* fix quantity and change the price to evaluate price index)

2. CPI = (base year quantity × current year price) / (base year quantity × base year price) × 100

B) Other way to evaluate price index:

3. IPPI (Industrial Producer Price Index) = (base year quantity × current year price) / (base year quantity × base year price) × 100

=> it measures the wholesale cost of fixed basket of good, which includes raw materials, etc.

=> which was purchased by producers.

=> IPPI often responds more quickly to inflationary or deflationary, b/c producers are sensitive to the changes in

overall demand for their goods.

7. Employment (E) = ① age ≥ 15 years old who ② gets a full time / part time job

8. Unemployment (U) = ① age ≥ 15 years old who ② doesn’t currently have a paid job but ③ is available for work and

④ actively find job within 4 weeks

9. Labour Force (LF) = U + E (people who are working and people who are actively finding a job)

10. Not in the Labour Force (NILF) = ① don’t have a job and ② are not looking for a job

(for example: full/part time students, housewife, retiredness)

11. Adult Population (Population ≥ 15) = U + E + NILF - Population under 15 = LF + NILF - Population under 15

12. Labour Force Partition Rate = (Labour Force / Adult Population) × 100%

13. Unemployment Rate = (# of people unemployed / Labour Force) × 100%

14. Employment Rate = (# of people employed / Adult Population) × 100%

15. Inflation Rate = [(year 2 price level - year 1 price level) / year 1 price level] × 100%

16. Real Interest Rate = Nominal Interest Rate - Inflation Rate

(* Nominal Interest Rate is what you can see in bank)

17. Expected Real Interest = Nominal Interest Rate - Expected Inflation Rate

18. Actual/Realized Real Interest = Nominal Interest Rate - Actual Inflation Rate

Remark: If Expected Real Interest > Actual/Realized Real Interest => borrowers WIN

If Expected Real Interest < Actual/Realized Real Interest => lenders WIN

19. Unexpected Inflation = Actual Inflation - Expected Inflation

20. # of years for a variable to double = 70 / Annual growth rate of variable

21. APL (Average Product of Labour) = real GDP / # of workers

22. Investment = Savings

23. GDP (for a closed economy) = Y (total income) = C + I + G

24. SNational = Y - C - G = SPrivate + SPublic

25. SPrivate = Y - T + TR - C

26. SPublic = T - TR - G = GBB (Government Budget Balance)

## Document Summary

Introduction to macroeconomics: a mathematical approach (formulas sheet) => it measures the wholesale cost of fixed basket of good, which includes raw materials, etc. Remark: if expected real interest > actual/realized real interest => borrowers win. Proof: since y = c + i + g + nx and snational = y - c - g. So y - c - g = i + nx. , where n = year to maturity, i = interest rate. Proof: aeplanned (planned aggregate expenditure) = c + iplanned + g + x - im. Aeplanned = (ac + mpc yd) + (ai - d i) + g + x0 - im0. Aeplanned = [ac + mpc (y - t0 + tr0)] + (ai - d i) + g + x0 - im0. = ac + mpc y - mpc t0 + mpc tr0 + ai - di + g + x0 - im0.