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Economics

Macro and micro relationships: national output, inflation, elasticity and the theory of money

GDP (Expenditure Approach)

Basic
GDP=C+I+G+(XM)GDP = C + I + G + (X - M)

National output measured as total spending by households, firms, government and net exports.

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GDP Growth Rate

Basic
g=GDP1GDP0GDP0×100%g = \dfrac{GDP_1 - GDP_0}{GDP_0}\times 100\%

The percentage change in real output between two periods.

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Inflation Rate

Basic
π=CPI1CPI0CPI0×100%\pi = \dfrac{CPI_1 - CPI_0}{CPI_0}\times 100\%

The rate at which the general price level rises over time.

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Unemployment Rate

Basic
u=UnemployedLabor Force×100%u = \dfrac{Unemployed}{Labor\ Force}\times 100\%

The share of the labor force that is jobless and actively seeking work.

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Real GDP

Intermediate
Real GDP=Nominal GDPDeflator×100Real\ GDP = \dfrac{Nominal\ GDP}{Deflator}\times 100

Output adjusted for inflation, so growth reflects real production, not rising prices.

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GDP Deflator

Intermediate
Deflator=Nominal GDPReal GDP×100Deflator = \dfrac{Nominal\ GDP}{Real\ GDP}\times 100

A broad price index covering all goods in GDP, not just a consumer basket.

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Price Elasticity of Demand

Intermediate
Ed=%ΔQd%ΔPE_d = \dfrac{\%\Delta Q_d}{\%\Delta P}

How responsive quantity demanded is to a change in price.

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Price Elasticity of Supply

Intermediate
Es=%ΔQs%ΔPE_s = \dfrac{\%\Delta Q_s}{\%\Delta P}

How responsive quantity supplied is to a change in price.

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Marginal Cost

Intermediate
MC=ΔTCΔQMC = \dfrac{\Delta TC}{\Delta Q}

The added cost of producing one more unit of output.

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Marginal Revenue

Intermediate
MR=ΔTRΔQMR = \dfrac{\Delta TR}{\Delta Q}

The added revenue from selling one more unit of output.

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Marginal Propensity to Consume

Intermediate
MPC=ΔCΔYMPC = \dfrac{\Delta C}{\Delta Y}

The fraction of an extra dollar of income that is spent rather than saved.

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Spending Multiplier

Intermediate
k=11MPCk = \dfrac{1}{1 - MPC}

How much total output rises from an initial change in spending.

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Quantity Theory of Money

Advanced
M×V=P×QM \times V = P \times Q

Links the money supply and its velocity to the price level and real output.

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Fisher Equation

Advanced
ir+πi \approx r + \pi

Relates nominal interest rates to the real rate plus expected inflation.

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Consumer Surplus

Advanced
CS=12×ΔP×ΔQCS = \tfrac{1}{2}\times \Delta P \times \Delta Q

The benefit consumers gain when they pay less than the maximum they were willing to pay.

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GDP (Expenditure)

Intermediate
GDP=C+I+G+(XM)GDP = C + I + G + (X - M)

Gross domestic product by spending.

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Price Elasticity of Demand

Intermediate
Ed=%ΔQ%ΔPE_d = \frac{\%\Delta Q}{\%\Delta P}

Responsiveness of demand to price changes.

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Consumer Price Index

Intermediate
CPI=Basket nowBasket base×100CPI = \frac{\text{Basket now}}{\text{Basket base}}\times 100

Measures price levels relative to a base year.

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Inflation Rate

Basic
π=CPI1CPI0CPI0×100\pi = \frac{CPI_1 - CPI_0}{CPI_0}\times 100

Percentage change in the price index.

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Unemployment Rate

Basic
u=UnemployedLabor Force×100u = \frac{\text{Unemployed}}{\text{Labor Force}}\times 100

Fraction of the labor force without work.

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Spending Multiplier

Advanced
k=11MPCk = \frac{1}{1 - MPC}

Total impact of spending given marginal consumption.

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Real GDP

Intermediate
Real=NominalDeflator×100Real = \frac{Nominal}{Deflator}\times 100

GDP adjusted for inflation.

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Marginal Utility

Intermediate
MU=ΔUΔQMU = \frac{\Delta U}{\Delta Q}

Extra satisfaction from one more unit.

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Opportunity Cost

Basic
OC=what you give upwhat you gainOC = \frac{\text{what you give up}}{\text{what you gain}}

Value of the next best alternative foregone.

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GDP per Capita

Basic
GDPPopulation\frac{GDP}{Population}

Average economic output per person.

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