AP Macroeconomics Cram Sheet

• •Calculate opportunity cost from output and input tables without hesitation.
• •Determine terms of trade that benefit both countries (between the two opportunity costs).
• •Distinguish a movement along the PPC (trade-off) from a shift of the PPC (growth).
• •Refresh supply/demand shifts, macro reuses them inside AD-AS and foreign exchange graphs.

1.1 Scarcity

Watch out: Treating scarcity and shortage as synonyms. Scarcity is the universal, permanent condition of limited resources; a shortage is a temporary gap between quantity demanded and quantity supplied at a specific price.

1.2 Opportunity Cost and the Production Possibilities Curve (PPC)

Watch out: Reading a bowed-out PPC as constant opportunity cost. Concave-to-the-origin means opportunity cost increases as you produce more of a good; only a straight-line PPC has constant opportunity cost.

1.3 Comparative Advantage and Gains from Trade

Watch out: Assigning comparative advantage to whoever produces the most, that is absolute advantage. Comparative advantage always goes to the producer with the lower opportunity cost, so compute the per-unit cost table first.

1.4 Demand

Watch out: Shifting the demand curve when the good's own price changes. Own-price changes move you along the curve (change in quantity demanded); only the non-price determinants shift the curve itself.

1.5 Supply

Watch out: Writing that a higher market price 'increases supply.' A higher price increases quantity supplied along a fixed curve; supply itself increases only when a determinant like input costs or technology shifts the curve right.

1.6 Market Equilibrium, Disequilibrium, and Changes in Equilibrium

Watch out: Giving a definite answer for both price and quantity in a double-shift question. When both curves move, one of the two is indeterminate unless the question states the relative sizes of the shifts.

• •Know what counts in GDP (final goods, produced this year, inside the country) and what does not (transfers, used goods, intermediate goods).
• •Classify unemployment as frictional, structural, or cyclical, the natural rate includes only the first two.
• •Calculate inflation with CPI and convert nominal to real using the deflator or real = nominal ÷ price index × 100.
• •Label the business cycle phases (expansion, peak, contraction/recession, trough) and tie them to output gaps.

2.1 The Circular Flow and GDP

Watch out: Counting transfer payments, used-good sales, or stock purchases in GDP. GDP only counts current production of final goods and services, transfers and financial transactions produce nothing new.

2.2 Limitations of GDP

Watch out: Claiming the country with the higher total GDP has the higher standard of living. Living-standard comparisons need per-capita GDP at minimum, and even that ignores distribution, leisure, and nonmarket production.

2.3 Unemployment

Watch out: Counting discouraged workers as unemployed. They stopped actively searching, so they leave the labor force, which is why the unemployment rate can fall even as the economy gets worse.

2.4 Price Indices and Inflation

Watch out: Reporting the CPI level as the inflation rate. A CPI of 130 does not mean 30% inflation this year, the inflation rate is the percentage CHANGE between two index values, e.g. from 125 to 130 it is 4%.

2.5 Costs of Inflation

Watch out: Reversing the winners: saying lenders gain from unanticipated inflation. Lenders locked into fixed nominal rates get repaid in cheaper dollars, borrowers gain, lenders and savers lose.

2.6 Real v. Nominal GDP

Watch out: Using nominal GDP growth as evidence the economy produced more. Nominal GDP can rise on inflation alone, deflate it first (real = nominal ÷ price index × 100) before making any claim about output.

2.7 Business Cycles

Watch out: Calling any slowdown a recession. If real GDP grows 3% one year and 1% the next, the economy is still expanding, a recession requires real GDP to actually fall.

• •Draw the full AD-AS graph with LRAS at full employment; show recessionary and inflationary gaps.
• •Compute multipliers: spending = 1/MPS, tax = −MPC/MPS; know why the tax multiplier is smaller.
• •Trace fiscal policy: government spending or tax changes → AD shifts → output, price level, unemployment.
• •Explain self-correction through wage adjustment shifting SRAS (see our SRAS vs LRAS guide).

3.1 Aggregate Demand (AD)

Watch out: Explaining AD's downward slope like a single-market demand curve ('people buy substitutes'). At the economy level there is no substitute for all output, you must cite the wealth, interest-rate, or net-export effect.

3.2 Multipliers

Watch out: Using the spending multiplier for a tax change. The tax multiplier is −MPC/MPS, negative and one smaller in absolute value, because part of any tax cut leaks into saving before it is ever spent.

3.3 Short-Run Aggregate Supply (SRAS)

Watch out: Shifting SRAS when the price level changes. The price level moves the economy along the SRAS curve; only cost-side changes, input prices, expectations, productivity, policy, shift the curve itself.

3.4 Long-Run Aggregate Supply (LRAS)

Watch out: Drawing LRAS upward-sloping or shifting it in response to price-level or AD changes. LRAS is vertical at potential output and moves only when resources, capital, or technology change, the same forces that shift the PPC.

3.5 Equilibrium in the Aggregate Demand–Aggregate Supply (AD–AS) Model

Watch out: Marking equilibrium output and full-employment output at the same spot when the question describes a gap. If output is below (or above) potential, current equilibrium must sit visibly left (or right) of LRAS on the horizontal axis.

3.6 Changes in the AD–AS Model in the Short Run

Watch out: Explaining stagflation with an AD shift. AD shifts move output and the price level in the same direction, only a leftward SRAS shift produces the rising-prices-plus-falling-output combination.

3.7 Long-Run Self-Adjustment

Watch out: Showing self-adjustment by shifting AD or LRAS. Self-correction works entirely through nominal wages changing production costs, it is always the SRAS curve that shifts back toward full employment.

3.8 Fiscal Policy

Watch out: Mixing fiscal and monetary tools, writing that the government 'lowers interest rates' or the Fed 'cuts taxes.' Fiscal policy is spending and taxes by Congress; interest rates and the money supply belong to the central bank.

3.9 Automatic Stabilizers

Watch out: Calling a new stimulus bill an automatic stabilizer. Automatic means no new legislation, the effect flows from existing tax brackets and transfer rules. A stimulus package Congress passes is discretionary fiscal policy.

• •Money market vs loanable funds: money market uses the NOMINAL rate and money supply is vertical; loanable funds uses the REAL rate and is driven by saving and borrowing.
• •Trace expansionary monetary policy: Fed buys bonds → money supply right → nominal rate falls → investment rises → AD shifts right.
• •Use the money multiplier (1/reserve ratio) on deposit-expansion questions, and know bond prices move inversely with interest rates.
• •Apply the Fisher equation: real rate ≈ nominal rate − expected inflation.

4.1 Financial Assets

Watch out: Saying bond prices and interest rates rise together. They move INVERSELY: when interest rates rise, previously issued bonds with lower fixed payments lose value.

4.2 Nominal v. Real Interest Rates

Watch out: Flipping the Fisher equation, the real rate is nominal MINUS expected inflation. If a bank charges 6% and expected inflation is 4%, the lender's expected real return is only 2%.

4.3 Definition, Measurement, and Functions of Money

Watch out: Counting credit cards as money. A credit card creates a loan you must repay, it is not a store of value and appears in neither M1 nor M2.

4.4 Banking and the Expansion of the Money Supply

Watch out: Multiplying the entire deposit by the money multiplier. Maximum money creation starts from EXCESS reserves: a $1,000 cash deposit with rr = 10% creates at most $900 × 10 = $9,000 of new money, the original $1,000 was already money.

4.5 The Money Market

Watch out: Labeling the money market's y-axis as the real interest rate, that belongs to the loanable funds market. The money market determines the NOMINAL rate.

4.6 Monetary Policy

Watch out: Reversing open market operations. The Fed BUYS bonds to expand the money supply and lower interest rates, and SELLS bonds to contract it, 'buy big, sell small.'

4.7 The Loanable Funds Market

Watch out: Labeling the loanable funds y-axis 'nominal interest rate.' Loanable funds determines the REAL rate, the nominal rate belongs to the money market.

• •Map AD-AS to the Phillips curve: an AD shift moves you along the SRPC; an SRAS shift moves the SRPC itself.
• •Draw crowding out: deficits raise demand for loanable funds → real rate rises → private investment falls.
• •Know the long-run: money growth raises inflation, not output; the LR Phillips curve is vertical at the natural rate.
• •Tie growth to its sources: more capital (physical and human), more labor, and better technology shift LRAS right.

5.1 Fiscal and Monetary Policy Actions in the Short Run

Watch out: Assuming combined expansionary fiscal and monetary policy must raise interest rates. Fiscal expansion pushes rates up, monetary expansion pushes them down, the interest-rate effect is indeterminate, while output unambiguously rises.

5.2 The Phillips Curve

Watch out: Shifting the SRPC when aggregate demand changes. A demand shift is a movement ALONG the short-run Phillips curve; only supply shocks or changed inflation expectations shift the curve itself.

5.3 Money Growth and Inflation

Watch out: Claiming a money supply increase raises real output in the long run. Money is neutral in the long run, it raises the price level while real GDP returns to potential.

5.4 Government Deficits and the National Debt

Watch out: Using 'deficit' and 'debt' interchangeably. The deficit is a one-year FLOW; the debt is the accumulated STOCK, a smaller deficit still grows the debt.

5.5 Crowding Out

Watch out: Drawing crowding out in the money market. Government borrowing works through the LOANABLE FUNDS market and the real interest rate, the Fed hasn't changed the money supply.

5.6 Economic Growth

Watch out: Calling a recovery from recession 'economic growth.' Returning to potential output is a movement back to the curve; growth is an outward shift OF the PPC (a rightward LRAS shift).

5.7 Public Policy and Economic Growth

Watch out: Treating a demand stimulus as a growth policy. Growth policies raise the economy's capacity and shift LRAS; AD shifts only move output temporarily relative to potential.

• •Draw the FOREX graph: demand and supply for a currency, with the exchange rate on the vertical axis.
• •Trace the chain: higher U.S. interest rates → foreign capital inflows → dollar demand rises → dollar appreciates → U.S. net exports fall.
• •Remember appreciation makes exports more expensive to foreigners; depreciation boosts net exports.
• •Know that the current account and the capital/financial account mirror each other.

6.1 Balance of Payments Accounts

Watch out: Putting foreign purchases of U.S. stocks or bonds in the current account. Asset purchases belong in the capital and financial account; only goods, services, investment income, and transfers go in the current account.

6.2 Exchange Rates

Watch out: Misreading a rise in the dollars-per-euro rate as dollar appreciation. If it takes MORE dollars to buy a euro, the dollar has DEPRECIATED and the euro has appreciated.

6.3 The Foreign Exchange Market

Watch out: Shifting the DEMAND for dollars when Americans buy more imports. Americans supply dollars to obtain foreign currency, that shifts the dollar SUPPLY curve right, depreciating the dollar.

6.4 Effect of Changes in Policies and Economic Conditions on the Foreign Exchange Market

Watch out: Forgetting everything is RELATIVE. A rate hike abroad with U.S. rates unchanged still depreciates the dollar, what matters is the interest-rate differential, not the U.S. level alone.

6.5 Changes in the Foreign Exchange Market and Net Exports

Watch out: Reversing the sign: a WEAKER currency helps net exports. Depreciation makes your goods cheaper abroad, so exports rise, imports fall, and net exports increase.

6.6 Real Interest Rates and International Capital Flows

Watch out: Comparing nominal rates across countries. Capital chases the REAL interest-rate differential, a high nominal rate paired with even higher inflation repels capital rather than attracting it.

Formulas you must know

GDP

GDP = C + I + G + (X − M) where Xn = X − M (net exports)

Real GDP

Real GDP = (Nominal GDP ÷ GDP deflator) × 100

GDP Deflator

GDP deflator = (Nominal GDP ÷ Real GDP) × 100

Inflation Rate

Inflation rate = [(CPI₂ − CPI₁) ÷ CPI₁] × 100

Unemployment Rate

Unemployment rate = (Unemployed ÷ Labor force) × 100 | Labor force = Employed + Unemployed

Spending Multiplier

Spending multiplier = 1 ÷ (1 − MPC) = 1 ÷ MPS | ΔGDP = multiplier × Δspending | Tax multiplier = −MPC ÷ MPS

CPI

CPI = (cost of basket in current year ÷ cost of basket in base year) × 100

Real Interest Rate

Real interest rate ≈ Nominal interest rate − Inflation rate

MPC

MPC = ΔC ÷ ΔY | MPS = 1 − MPC | spending multiplier = 1 ÷ MPS | tax multiplier = −MPC ÷ MPS

Money Multiplier

Money multiplier = 1 ÷ required reserve ratio | Δmoney supply = money multiplier × excess reserves

Comparative Advantage

Opportunity cost of 1 unit of Good A = (units of Good B given up) ÷ (units of Good A gained). Lower ratio = comparative advantage.

Tax Multiplier

Tax multiplier = −MPC ÷ (1 − MPC) = −MPC ÷ MPS | ΔGDP = tax multiplier × Δtaxes

MPC & MPS

MPC = ΔC ÷ ΔY | MPS = ΔS ÷ ΔY | MPC + MPS = 1

Labor Force Participation

LFPR = (Labor force ÷ working-age population) × 100 | Labor force = employed + unemployed

Velocity of Money

M × V = P × Q (quantity theory of money), so V = (P × Q) ÷ M = nominal GDP ÷ money supply

Opportunity Cost

Per-unit opportunity cost of good A = units of good B given up ÷ units of good A gained

GDP per Capita

GDP per capita = Real GDP ÷ Population

Economic Growth Rate

Growth rate (%) = ((Real GDP in year 2 − Real GDP in year 1) ÷ Real GDP in year 1) × 100

Percentage Change

Percentage change = ((New value − Old value) ÷ Old value) × 100

Balanced Budget Multiplier

Balanced budget multiplier = spending multiplier + tax multiplier = 1 ÷ (1 − MPC) + (−MPC ÷ (1 − MPC)) = (1 − MPC) ÷ (1 − MPC) = 1 | ΔGDP = 1 × Δspending (when Δspending = Δtaxes)

Present Value

PV = FV ÷ (1 + r)ⁿ where r = interest (discount) rate as a decimal, n = number of years

Recessionary Gap

Recessionary gap = Potential real GDP − Actual real GDP | As a percent of potential: [(Potential − Actual) ÷ Potential] × 100

Inflationary Gap

Inflationary gap = Actual real GDP − Potential real GDP | Required spending cut = Gap ÷ Spending multiplier

Output Gap

Output gap = Actual real GDP − Potential real GDP | Output gap (%) = [(Actual − Potential) ÷ Potential] × 100

Budget Deficit

Budget deficit = Government outlays − Government revenue (one year) | Budget surplus = Revenue − Outlays | New debt = Old debt + this year's deficit

Debt-to-GDP Ratio

Debt-to-GDP ratio = (Total government debt ÷ Nominal GDP) × 100

Required Spending Change

Required Δspending = Gap ÷ Spending multiplier where Spending multiplier = 1 ÷ (1 − MPC) = 1 ÷ MPS | Rearranged from ΔGDP = Multiplier × Δspending

Required Tax Change

Required Δtaxes = Gap ÷ Tax multiplier where Tax multiplier = −MPC ÷ MPS | A negative Δtaxes is a tax cut | Required tax change = Required spending change ÷ MPC

Labor Productivity

Labor productivity = Real output ÷ Labor hours

Gains From Trade

Gains from trade = Consumption with trade − Production without trade (computed per good, per country)

Terms of Trade Range

Lower opportunity cost of 1 X < Terms of trade for 1 X < Higher opportunity cost of 1 X (both bounds measured in units of good Y)

Compound Growth

End value = Start value × (1 + g)ⁿ where g = growth rate as a decimal, n = number of periods. Average growth rate = (End ÷ Start) raised to the power (1 ÷ n), minus 1

Future Value

FV = PV × (1 + r)ⁿ where r = interest rate as a decimal, n = number of years

Expected Value

Expected value = Σ (probability of an outcome × payoff of that outcome), where the probabilities must sum to 1

Real Wage

Real wage = (Nominal wage ÷ Price index) × 100

Rule of 70

Years to double = 70 ÷ annual growth rate (in percent)

Misery Index

Misery index = Inflation rate (%) + Unemployment rate (%)

Natural Rate

Natural rate = Frictional rate + Structural rate | Natural rate = Actual unemployment rate − Cyclical rate

Cyclical Unemployment

Cyclical unemployment rate = Actual unemployment rate − Natural rate of unemployment

Employment-Population Ratio

Employment-population ratio = (Employed ÷ Civilian noninstitutional population age 16+) × 100

Cost-of-Living Adjustment

COLA = Benefit × Inflation rate | New benefit = Benefit + COLA = Benefit × (1 + Inflation rate)

Currency Conversion

Amount in target currency = amount in starting currency × (target currency per 1 unit of starting currency) Reverse rate = 1 ÷ original rate Dividing by a rate is the same as multiplying by its reciprocal

Currency Appreciation

Appreciation % = [(new rate − old rate) ÷ old rate] × 100 The rate must be quoted as foreign currency per 1 unit of the currency you are tracking A positive result is appreciation, a negative result is depreciation

Currency Depreciation

Depreciation % = [(new rate − old rate) ÷ old rate] × 100 Rate = foreign currency per 1 unit of the currency you are tracking A negative result is depreciation, and its absolute size is the percentage fall

Purchasing Power Parity

PPP exchange rate = price of the basket in currency A ÷ price of the same basket in currency B The result is units of currency A per 1 unit of currency B Overvaluation or undervaluation % = (market rate − PPP rate) ÷ PPP rate × 100

Real Exchange Rate

Real exchange rate = nominal exchange rate × (domestic price level ÷ foreign price level) Convention used here: the nominal rate is quoted as foreign currency per 1 unit of domestic currency A rise means domestic goods have become relatively more expensive

Current Account

Current account = balance on goods and services + net primary income + net secondary income Balance on goods and services = exports − imports Net primary income = investment income and worker pay received − paid out Net secondary income = transfers received − transfers sent

Terms of Trade

Terms of trade = (index of export prices ÷ index of import prices) × 100 Above 100 means export prices have risen faster than import prices since the base year Percent change = (new index − old index) ÷ old index × 100

Nominal GDP

Nominal GDP = sum of (current-year price × current-year quantity) | Nominal GDP = C + I + G + (X − M) at current prices

Net Exports

Net exports (Xn) = exports (X) − imports (M) | GDP = C + I + G + Xn

Disposable Income

Disposable income (DI) = personal income − personal taxes | DI = consumption (C) + saving (S)

National Income

National income (NI) = compensation of employees + rental income + net interest + proprietors' income + corporate profits

Net Domestic Product

NDP = GDP − depreciation (consumption of fixed capital) | Net investment = gross investment − depreciation

Value Added

Value added = value of a firm's sales − cost of intermediate goods purchased | GDP = sum of value added at every stage

GDP Income Approach

GDP = wages + rent + interest + profit + depreciation + taxes on production and imports (plus a statistical discrepancy)

Required Reserves

Required reserves = required reserve ratio × checkable deposits

Excess Reserves

Excess reserves = total reserves − required reserves | required reserves = required reserve ratio × checkable deposits

Deposit Expansion

Maximum deposit expansion = excess reserves × (1 ÷ required reserve ratio)

Nominal Interest Rate

Nominal interest rate ≈ real interest rate + expected inflation rate

Fisher Equation

Nominal ≈ real + expected inflation | real ≈ nominal − expected inflation | expected inflation ≈ nominal − real

Equation of Exchange

M × V = P × Q (P × Q = nominal GDP) | growth form: %ΔM + %ΔV ≈ %ΔP + %ΔQ

M1 and M2

M1 = currency in circulation + checkable deposits + traveler's checks | M2 = M1 + savings deposits + small time deposits + retail money market funds

National Debt

National debt = Starting debt + Sum of past deficits − Sum of past surpluses | Yearly interest cost = Debt × Interest rate

Private Saving

Private saving = Disposable income − Consumption = Y − T − C | Public saving = T − G | National saving = Private saving + Public saving = Y − C − G

GNP

GNP = GDP + net foreign factor income | Net foreign factor income = income residents earn abroad − income foreigners earn domestically

Market Capitalization

Market cap = share price × shares outstanding | Percent change in market cap = percent change in share price, when the share count is unchanged

Capital Gain

Capital gain = selling price − purchase price (cost basis) | Percent return = (gain ÷ purchase price) × 100 | After-tax gain = gain × (1 − tax rate)

P/E Ratio

P/E ratio = share price ÷ earnings per share (EPS) | EPS = net income ÷ shares outstanding | Earnings yield = (EPS ÷ share price) × 100

Growth Accounting

%ΔY = %ΔA + α(%ΔK) + (1 − α)(%ΔL) α = capital's share of income, so labor's share is 1 − α Solow residual: %ΔA = %ΔY − α(%ΔK) − (1 − α)(%ΔL)

Marshall-Lerner Condition

Marshall-Lerner condition: |εx| + |εm| > 1 Change in export value = |εx| × depreciation Change in import value = (1 − |εm|) × depreciation Change in the trade balance ≈ trade value × depreciation × (|εx| + |εm| − 1)

Twin Deficits

(S − I) + (T − G) = NX S = private saving, I = domestic investment, T = net tax revenue, G = government spending, NX = net exports National saving = S + (T − G), so NX = national saving − I

Monetary Base

Monetary base (MB) = currency in circulation + bank reserves | maximum checkable deposits = bank reserves ÷ required reserve ratio | maximum money supply (M1) = currency in circulation + maximum checkable deposits | deposit multiplier = 1 ÷ required reserve ratio

Real Money Balances

Real money balances = M ÷ P | with a price index based at 100: real balances = (M ÷ price index) × 100

Taylor Rule

i = r* + π + 0.5(π − π*) + 0.5(output gap) | r* is the neutral real rate, π* is the inflation target

Yield to Maturity

Approximate YTM = [C + (F − P) ÷ n] ÷ [(F + P) ÷ 2] | exact YTM = the discount rate that makes the present value of every coupon plus the face value equal the price

Term Structure

(1 + long rate)ⁿ = (1 + r₁) × (1 + r₂) × ... × (1 + rₙ) | n-year yield = [(1 + r₁)(1 + r₂)...(1 + rₙ)]^(1 ÷ n) − 1

Default Risk Premium

Default risk premium = Risky bond yield − Risk-free yield (same maturity) | Break-even default rate = Premium ÷ (1 − Recovery rate)

Leverage Ratio

Leverage ratio = Assets ÷ Equity | Wipeout threshold = Equity ÷ Assets = 1 ÷ leverage ratio

PMI

PMI = (% reporting better) + (0.5 × % reporting no change) | equivalently PMI = 50 + 0.5 × (% better − % worse)

Core Inflation

Core inflation rate = ((core index now − core index a year earlier) ÷ core index a year earlier) × 100

Capacity Utilization

Capacity utilization rate = (actual output ÷ sustainable maximum output) × 100 | Idle capacity = sustainable maximum output − actual output

Inventory-to-Sales

Inventory-to-sales ratio = inventories ÷ monthly sales | Days of sales covered = ratio × 30

Sacrifice Ratio

Sacrifice ratio = cumulative percent of one year's output lost ÷ percentage-point fall in inflation

Index Number

Index number = (Value in the period ÷ Value in the base period) × 100

Nominal Value

Nominal value = Real value × (Price index ÷ 100) | Real value = Nominal value ÷ (Price index ÷ 100)

Adaptive Expectations

Expected inflation next period = Expected inflation now + a × (Actual inflation now − Expected inflation now), with a between 0 and 1

Arbitrage Profit

Arbitrage profit = (selling price − buying price) × quantity − transaction costs Break-even quantity = transaction costs ÷ (selling price − buying price)

Hedge Fund Fees

Management fee = management fee rate × assets | Performance fee = performance fee rate × gross gain | Investor's net gain = gross gain − management fee − performance fee

Export Subsidy

Domestic price with the subsidy = world price + subsidy per unit | Exports = domestic quantity supplied − domestic quantity demanded, both read at that price | Government cost = subsidy per unit × exports after the subsidy | Net welfare loss = ½ × subsidy × rise in domestic output + ½ × subsidy × fall in domestic consumption

Customs Union Welfare

Net welfare = trade creation gain − trade diversion loss Trade creation gain = ½ × price fall × rise in imports Trade diversion loss = old import volume × (partner price − world price) Price fall = (world price + tariff) − partner price

Flat-Rate Loan Interest

Total interest = amount borrowed × flat rate × years Average balance owed = amount borrowed × (n + 1) ÷ (2n) where n = number of equal installments Effective rate = total interest ÷ (average balance × years) × 100

Skilled Emigration Rate

Skilled emigration rate = skilled emigrants ÷ (skilled emigrants + skilled workers at home) × 100 Skilled stock trained at home = skilled emigrants + skilled workers at home Retention rate = 100 − skilled emigration rate

Catch-Up Time

Years to catch up = ln(rich income ÷ poor income) ÷ ln[(1 + g poor) ÷ (1 + g rich)] where g is the annual growth rate of real GDP per person, written as a decimal

Unit Labor Cost

Unit labor cost = Wage per hour ÷ Output per hour | Output per hour = Total output ÷ Total hours worked

Job Finding Rate

Job finding rate = Hires ÷ Unemployed | Vacancy filling rate = Hires ÷ Vacancies | Market tightness = Vacancies ÷ Unemployed | Expected spell length = 1 ÷ job finding rate

Seigniorage

Real seigniorage = (change in the monetary base ÷ price index) × 100 | Inflation tax = inflation rate × real money balances

Corporate Income Tax

Taxable profit = revenue − deductible costs (wages, materials, interest, depreciation) | Tax owed = statutory rate × taxable profit | After-tax profit = taxable profit − tax owed

Tax Expenditure

Tax expenditure = revenue under a clean base − revenue actually collected | Per taxpayer: marginal rate × amount removed from the base | Program cost = per-taxpayer amount × number of claimants

Means-Tested Benefit

Benefit = maximum benefit − [phase-out rate × (income − threshold)], floored at zero | Break-even income = threshold + (maximum benefit ÷ phase-out rate) | Effective marginal tax rate = phase-out rate + other taxes on the next dollar

Universal Basic Income Cost

Gross cost = Payment per person × Number of recipients | Funding tax rate = Gross cost ÷ Taxable income base | Break-even earnings = Payment ÷ Funding tax rate | Net position = Payment − (Funding tax rate × Earnings)

Graphs you must be able to draw

Drawing points are the easiest points to lose. Practice each of these until you can draw it from memory, fully labeled.

Then test yourself: draw the graph for a graded check or watch a shock move through it step by step.