AP Macroeconomics Formulas

Labor force participation rate

Labor Force / Working Age Population

Unemployment rate

(Unemployed Workers / Total Labor Force) * 100%

Percent change in GDP

((Year 2 - Year 1) / Year 1)* 100

Consumer price index (CPI)

(Price of market basket / Price of market basket in base year) * 100

GDP Deflator

(Nominal GDP / Real GDP) * 100

GDP Expenditure Approach

C+I+G+Xn

C = Consumer spending

I = Investment spending

G = Government spending

Xn = Net exports (exports - imports)

Income Approach

L+R+I+P

L = Labor

R = Rental

I = Interest

P = Profit

Marginal Propensity to Save (MPS)

Change in Savings / Change in Disposable income

or, MPS = 1 - MPC

Spending Multiplier

1/MPS or 1/1-MPC

Tax Multiplier

MPC * 1/MPS or MPC/MPS

Money Multiplier

1 / Reserve Requirement (ratio)

Real Interest Rate

Nominal interest rate - expected inflation

Quantity Theory of Money

M * V = P * Y

M = money supply

V = velocity

P = price level

Y = quantity of output

• Velocity and output are usually constant in the long run