Macro Formula sheet:

This document gives every single formula from every single chapter to cover.

Chapter 2:

The GDP deflator

It is the ratio of nominal GDP and real GDP.
𝑁𝑜𝑚𝑖𝑛𝑎𝑙 𝐺𝐷𝑃𝑡 $𝑌𝑡
𝑃𝑡 = =
𝑅𝑒𝑎𝑙 𝐺𝐷𝑃𝑡 𝑌𝑡
$𝑌𝑡
𝑌𝑡 = 𝑃𝑡
The GDP deflator is an index number. The only economic interest is the rate of change (denoted by π t). The
advantage is that the GDP deflator indicates a relation between the nominal and the real GDP.

Chapter 3:

Total Demand
Z = C + I + G + X – IM
(We assume X=IM=0 (=> closed economy))
Z=C+I+G
With
C = c0 + c1 (Y - T)

Chapter 6:

Real interest rate:

𝑒
𝑟𝑡 = 𝑖𝑡 − 𝜋𝑡+1

Formula involving interest rate, risk premium and probability of default:

1 + 𝑖 = (1 − 𝑝) ∗ (1 + 𝑖 + 𝑥) + [𝑝 ∗ 0]
The last term in square brackets is irrelevant. It is the probability of default times receiving the value of
default which is zero. Therefore, it is just equal to zero.

Complete IS relation: 𝑌 = 𝐶(𝑌 − 𝑇) + 𝐼(𝑌, 𝑟 + 𝑥) + 𝐺

Complete LM relation: 𝑟 = 𝑟̅

Chapter 7:

Participation rate:
𝑙𝑎𝑏𝑜𝑢𝑟 𝑓𝑜𝑟𝑐𝑒
𝑃𝑅 =
𝑛𝑜𝑛 − 𝑖𝑛𝑠𝑡𝑖𝑡𝑢𝑡𝑖𝑜𝑛𝑎𝑙 𝑐𝑖𝑣𝑖𝑙𝑖𝑎𝑛 𝑝𝑜𝑝𝑢𝑙𝑎𝑡𝑖𝑜𝑛

Unemployment rate:

𝑈𝑛𝑒𝑚𝑝𝑙𝑦𝑜𝑚𝑒𝑛𝑡
𝑈𝑅 =
𝑙𝑎𝑏𝑜𝑢𝑟 𝑓𝑜𝑟𝑐𝑒
Wage setting:
𝑊
= 𝐹(𝑢, 𝑧)
𝑃
(−, +)
We assume that expectations are correct. If we talk about nominal wages, the wage setting relation depends
on the expected price level.

Price setting:
𝑊 1
=
𝑃 1+𝑚
The price setting relation does not depend on the expected but on the real price level. Therefore, if
expectations are higher than reality, natural unemployment increases.

Chapter 8:

Phillips curve (1):

𝜋𝑒 = 𝜋𝑡𝑒 + (𝑚 + 𝑧) − 𝛼𝑢𝑡

Phillips curve (2):

𝜋𝑡 − 𝜋𝑡𝑒 = −𝛼(𝑢𝑡 − 𝑢𝑛 )

Formula for expected inflation:

𝜋𝑡𝑒 = (1 − 𝜃)𝜋̅ + 𝜃𝜋𝑡−1

Chapter 9:

Phillips curve (3):

𝛼
𝜋 − 𝜋𝑒 = ∗ (𝑌 − 𝑌𝑛 )
𝐿

Chapter 11:

Change in capital per worker:

𝐾𝑡+1 𝐾𝑡 𝑌𝑡 𝐾𝑡
− =𝑠 −𝛿
𝑁 𝑁 𝑁 𝑁
Or equivalently,
𝐾𝑡+1 𝐾𝑡 𝐾𝑡 𝐾𝑡
− = 𝑠𝑓 ( ) − 𝛿
𝑁 𝑁 𝑁 𝑁
For solow model without population growth or technological progress.

Chapter 12:

Investment per effective worker:

𝐼 𝐾
= 𝑠𝑓 ( )
𝐴𝑁 𝐴𝑁

Required investment per effective worker:

𝑟𝑒𝑞. 𝐼 𝐾
= (𝛿 + 𝑔𝐴 + 𝑔𝑁 ) ∗
𝐴𝑁 𝐴𝑁

Solow residual:
 𝑟𝑒𝑠𝑖𝑑𝑢𝑎𝑙 = 𝑔𝑦 − (𝑔𝑛 + (1 − )𝑔𝑘 )
It measures total factor productivity growth.

Chapter 13:

Wage setting price setting including expectations:

Price setting:
𝑊 𝐴
=
𝑃 1+𝑚

Wage setting:
𝑊
= 𝐴𝑒 𝐹(𝑢, 𝑧)
𝑃

Chapter 22:

Change in government debt:

𝐵𝑡 − 𝐵𝑡−1 = 𝑟𝐵𝑡−1 + 𝐺𝑡 − 𝑇𝑡

Change in debt ratio:

𝐵𝑡 𝐵𝑡−1 𝐵𝑡−1 𝐺𝑡 − 𝑇𝑡
− = (𝑟 − 𝑔) +
𝑌𝑡 𝑌𝑡−1 𝑌𝑡−1 𝑌𝑡

Seignorage:
∆𝐻 𝐻
𝑠𝑒𝑖𝑔𝑛𝑜𝑟𝑎𝑔𝑒 =
𝐻 𝑃
Change in the nominal money stock times the current money stock.

Seignorage in relation to primary deficit:

𝐻
𝑠𝑒𝑖𝑔𝑛𝑜𝑟𝑎𝑔𝑒 ∆𝐻 𝑃
= ( )
𝑌 𝐻 𝑌
Imagine, the government runs a budget deficit of 10% and decides to finance it through seignorage.
Therefore, the term on the left hand side is equal to 10%. The ratio of real money balance to monthly GDP
is 1 in most advanced economies. Consequently:
∆𝐻 ∆𝐻
10% = ∗ 1 => = 10%
𝐻 𝐻

Chapter 23:

Taylor rule:
𝑖𝑡 = 𝑖 𝑡 + 𝑎(𝜋𝑡 − 𝜋 ∗ ) − 𝑏(𝑢𝑡 − 𝑢𝑛 )

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