Essential Macroeconomics Formulas and Calculations

National Income Accounting Formulas

Gross Domestic Product (GDP) and Growth

• GDP = C + I + G + (X - M)
• GDP per capita = GDP / Population
• Real GDP = (Nominal GDP / GDP Deflator) × 100 (GDP adjusted for the inflation level)
• Real Economic Growth Rate = [(New Real GDP - Old Real GDP) / Old Real GDP] × 100%

GNI, NNP, and Green GDP

• GNI/GNP = GDP + Net Income from Abroad (Income from abroad - income sent abroad)
• GDP = GNI - Net Income from Abroad
• NNP (Net National Product) = GNP - Depreciation
• Green GDP = GDP - Environmental Costs of Pollution

Consumption, Saving, and the Multiplier

• MPC (Marginal Propensity to Consume) = Consumption (C) / Income (Y)
• MPS (Marginal Propensity to Save) = Saving (S) / Income (Y) OR MPS = 1 - MPC
• MPC (Marginal Change) = Change in Consumption / Change in Income
• MPS (Marginal Change) = Change in Saving / Change in Income
• Leakages: 1 - MPC = MPS + MPT + MPM
• Multiplier = 1 / (MPS + MPT + MPM)
• Ultimate Increase in GDP = Initial Increase in Component × Multiplier

Inflation and Income Inequality

• Inflation Rate = [(Index for Year X+1 - Index for Year X) / Index for Year X] × 100
• Gini Index = a / (a + b)

Taxation and Labor Market Metrics

• Marginal Tax Rate = (Change in Total Tax Paid / Change in Income) × 100
• Average Tax Rate = (Total Tax Paid / Income) × 100
• Total Labor Force = Total Number of Employed People + Total Number of Unemployed People
• Adult Population = Total Labor Force + Number of People Not in Labor Force
• Labor Force Participation Rate = (Total Labor Force / Adult Population) × 100
• Unemployment Rate = (Number of Unemployed People / Total Labor Force) × 100

International Trade and Balance of Payments

Comparative Advantage and Terms of Trade

• Terms of Trade (TOT) = (Weighted Index of Average Export Prices / Weighted Index of Average Import Prices) × 100
• Opportunity Cost (OP) of A = B / A
• Opportunity Cost (OP) of B = A / B
• Note: The smaller number has the comparative advantage.

Balance of Payments (BOP) Components

• Balance of Trade in Goods = Export of Goods + Import of Goods
• Balance of Trade in Services = Export of Services + Import of Services
• Net Income Receipts = Income Receipt + Income Payment
• Unilateral Current Transfers, Net
• Net Income Flows = Net Income Receipts + Unilateral Current Transfers, Net
• Current Account Balance = Balance of Trade in Goods + Balance of Trade in Services + Net Income Flows
• Current Account Balance = Capital Account + Financial Account + Errors and Omissions
• Capital and Financial Account Balance = Net Capital Account Transactions + Assets Abroad + Foreign Assets + Financial Derivatives + Statistical Discrepancy