Macroeconomics cheat sheet

GDP

Gross domestic product measures the value of final goods and services produced within an economy during a period. Intermediate inputs are not counted again separately.

A common expenditure expression is C + I + G + (X − M).

Nominal and real

Nominal values use current prices. Real measures adjust for price changes to support comparisons of output or purchasing power over time.

Higher nominal output can reflect prices, quantities or both.

Inflation

Inflation is a rise in a general price measure over time, rather than a rise in every individual price.

Inflation rate = (new index − old index) ÷ old index × 100%.

Unemployment rate

The unemployment rate uses the labour force as its denominator, under the applicable statistical definition. It is not a share of the entire population.

Unemployment rate = unemployed ÷ labour force × 100%.

Expenditure components

A standard expenditure identity is GDP = C + I + G + (X − M). Imports are subtracted because imported spending may already be included in other components.

Use definitions consistent with the accounting period and the treatment of final goods and services.

Value added

Value added is output value minus the value of intermediate inputs. Adding value across production stages avoids counting the same intermediate output repeatedly.

If grain sells for 5 and the final bread for 12, total value added across those stages is 12, not 17.

Inflation rates

An inflation rate measures the percentage change in a chosen price index over a stated period. A lower positive rate means prices are rising more slowly, not necessarily falling.

A change from index 100 to 105 is 5% inflation for that interval.

Aggregate demand and supply

Aggregate models relate total planned spending and output-price behaviour under specified assumptions. A model’s short-run and long-run results need not be the same.

Distinguish a movement along a model curve from a shift caused by a changed determinant.

Worked example: real output

If nominal GDP is 1200 and the GDP deflator is 120 with base 100, real GDP is 1200/1.20 = 1000 in base-period prices.

Dividing by 120 without adjusting its base would introduce a factor-of-100 error.

Common mistake: everyone without a job is unemployed

The unemployment rate uses an official labour-force definition, including criteria about seeking and availability for work. It is not simply non-employed people divided by the whole population.

Check the source’s definition and time frame before comparing labour-market measures.

Check your understanding

If C = 410, I = 80, G = 120, X = 50 and M = 60, what is GDP in the stated units?

600: 410 + 80 + 120 + 50 − 60.

Curriculum connections

Sources