Important Formulas in Macroeconomics | Class 12
Chapter: Introduction
Net Investment = Gross Investment β Depreciation
Net Indirect Tax = Indirect Taxes β Subsidies
3. Market Price
Market Price = Factor Cost + Net Indirect Taxes
OR
= Factor Cost + (Indirect Taxes β Subsidies)
Net Factor Income from Abroad = Factor income earned from abroad β Factor income paid abroad
OR
Net Factor Income from Abroad = Net Compensation of Employees + Net Income from Property and Entrepreneurship + Net Retained Earnings
National Income = Domestic Income + NFIA
6. Depreciation
Depreciation = Gross Value β Net Value
7. Leakages in Different Types of Economies
Leakages in Different Types of Economies | |
---|---|
Two-Sector Economy (with Financial Market) | Savings |
Two-Sector Economy (without Financial Market) | No Leakages |
Three-Sector Economy | Savings + Taxes |
Four-Sector Economy | Savings + Taxes + Imports |
8. Injections in Different Types of Economies
Injections in Different Types of Economies | |
---|---|
Two-Sector Economy (with Financial Market) | Investment |
Two-Sector Economy (without Financial Market) | No Injection |
Three-Sector Economy | Investment + Government Expenditure |
Four-Sector Economy | Investment + Government Expenditure + Exports |
Chapter: National Income Accounting
- Gross Domestic Product at Factor Cost (GDPFC)
GDPFC = GDPMP β Net Indirect Taxes
- Net Domestic Product at Market Price (NDPMP)
NDPMP = GDPMP β Depreciation
- Net Domestic Product at Factor Cost (NDPFC) or Domestic Income
NDPFC = GDPMP β Net Indirect Taxes β Depreciation
- Gross National Product at Market Price (GNPMP)
GNPMP = GDPMP + Net Factor Income from Abroad
- Gross National Product at Factor Cost (GNPFC)
GNPFC = GNPMP β Net Indirect Taxes
- Net National Product at Market Price (NNPMP)
NNPMP = GNPMP β Depreciation
- Net National Product at Factor Cost (NNPFC) or National Income
NNPFC = GNPMP β Net Indirect Taxes β Depreciation
2. Domestic Income
Income from Domestic Product accruing to Private Sector = NDPFC β Income from Property and Entrepreneurship accruing to Government Administrative Departments β Savings of Non-Departmental Enterprises
3. Private Income
Private Income = Factor Income earned (within domestic territory + from rest of the world) + Transfer Income received (within domestic territory + from rest of the world)
OR
= Income from Domestic Product Accruing to Private Sector + NFIA + Interest on National Debt + Current Transfers from Government + Net Current Transfer from Rest of the World
4. Personal Disposable Income
Personal Disposable Income = Personal Income β Personal Taxes Miscellaneous Receipts of Government
OR
= Personal Consumption Expenditure + Personal Savings
5. National Disposable Income
National Disposable Income = National Income + Net Indirect Taxes + Net Current Transfers from the rest of the world
OR
= National Consumption Expenditure + National Savings
6. Gross National Disposable Income
Gross National Disposable Income = Net National Disposable Income + Depreciation
- GDPMP using Value Added Method
βGVAMP = GDPMP
- Value Added
Value Added = Value of Output β Intermediate Consumption
- Value of Output when the whole output is sold in a financial year
Value of Output = Sales
- Value of Output when the whole output is not sold in a financial year
Value of Output = Sales + Change in Stock
Change in Stock = Closing Stock β Opening Stock
- Value of Output
Value of Output = (Quantity Γ Price) + Change in Stock
- National Income using Value Added Method
National Income or NNPFC = GDPMP β Depreciation β Net Indirect Taxes + NFIA
OR
= Domestic Income or NDPFC + NFIA
- GDPMP using Expenditure Method
GDPMP = β Final Expenditure
β Final Expenditure = Private Final Consumption Expenditure (PFCE) + Government Final Consumption Expenditure (GFCE) + Gross Domestic Capital Formation (GDCF) + Net Exports (NX)
- Private Final Consumption Expenditure (PFCE)
PFCE = Household Final Consumption Expenditure + Non-profit Private Institutions Final Consumption Expenditure
- Government Final Consumption Expenditure (GFCE)
GFCE = Intermediate Consumption of Government + COE paid by Government +Direct purchases from abroad for embassies and consulates located abroad β Sale of goods and services produced by general government
- Gross Domestic Capital Formation (GDCF)
GDFC = Gross Fixed Capital formation + Inventory Investment
or
= Gross Business Fixed Investment + Gross Residential Construction Investment + Gross Public Investment + Inventory Investment
- Net Exports (X β M)
Net Exports = Exports β Imports or (X-M)
- National Income using Expenditure Method
National Income or NNPFC = βFinal Expenditure or GDPMP β Depreciation β Indirect taxes + NFIA
OR
= Domestic Income or NDPFC + NFIA
- Profit
Profit = Corporate Tax + Dividend + Retained Earnings
- Operating Surplus
Operating Surplus = Rent + Royalty + Interest + Profit
or
= Value of Output β Intermediate Consumption β Compensation of Employees β Mixed Income β Consumption of Fixed Capital β Net Indirect Taxes
- National Income using Income Method
NNPFC = NDPFC + NFIA
Where,
NDPFC = Compensation of Employees + Profit + Rent & Royalty + Interest + Mixed income
10. National Income at Constant Price
13. GDP Deflator
Chapter: Money and Banking
- M1
M1 = Currency and coins with public + Demand deposits of commercial banks + Other deposits with Reserve Bank of India
- M2
M2 = M1 + Savings Deposits with Post Office Saving Bank
- M3
M3 = M1 + Net Time Deposits with Banks
- M4
M4 = M3 + Total Deposits with Post Office Saving Bank
Chapter: Determination of Income and Employment
Aggregate Demand (AD) = C + I + G + (X β M)
= Private Consumption Expenditure + Investment Expenditure + Government Expenditure + Net Exports (Exports β Imports)
2. Aggregate Supply
Aggregate Supply (AS) or National Income (Y) = Consumption (C) + Saving (S)
3. Consumption Function
C = f(Y)
Where,
C = Consumption
f = Functional Relationship
Y = National Income
6. Saving Function
S = f(Y)
Where,
S = Saving
f = Functional Relationship
Y = National Income
9. Relationship between APC ad APS
APC + APS = 1
10. Relationship between MPC and MPS
MPC + MPS = 1
11. Values of APC, APS, MPC, and MPS
Value | APC | APS | MPC | MPS |
---|---|---|---|---|
Negative | APC can never be less than zero, because of the presence of | APS can be less than zero when C>Y; i.e., before Break-even Point. | MPC can never be less than zero, as can never be more than | MPS can never be less than zero, as can never be more than |
Zero | APC can never be zero, because of the presence of | APS can be zero when C=Y; i.e., at Break-even Point. | MPC can never be zero, when | MPS can never be zero, when |
One | APC can be one when C=Y; i.e., at BEP | APS can never by one as savings can never be equal to income | MPC can never be zero, when | MPS can never be zero, when |
More than One | APC can be more than one when C>Y; i.e., before Break-even Point. | APS can never be more than one as savings can never be more than income | MPC can never be less than zero, as can never be more than | MPS can never be less than zero, as can never be more than |
12. Equation of Consumption Function
Where,
C = Consumption
b = MPC
Y = Income
13. Equation of Saving Function
Where,
S = Saving
1-b = MPS
Y = Income
14. Marginal Efficiency of Investment (MEI)
15. Two Approaches for Determination of Equilibrium Level
- Aggregate Demand-Aggregate Supply Approach (AD-AS Approach): Equilibrium will be achieved when,
AD = AS
- Saving-Investment Approach (S-I Approach): Equilibrium will be achieved when,
S = I
16. Investment Multiplier
OR
OR
The maximum value of the Multiplier is β when MPC = 1
The minimum value of Multiplier is 1 when MPC = 0
Chapter: Government Budget and the Economy
- Revenue Deficit
Revenue Deficit = Revenue Expenditure β Revenue Receipts
- Fiscal Deficit
Fiscal Deficit = Total Expenditure β Total Receipts (except borrowings)
OR
= (Revenue Expenditure + Capital Expenditure) β (Revenue Receipts + Capital Receipts excluding Borrowings)
OR
= (Revenue Expenditure β Revenue Receipts) + (Capital Expenditure β Capital Receipts excluding Borrowings)
OR
= Revenue Deficit + (Capital Expenditure β Capital Receipts excluding Borrowings)
- Primary Deficit
Primary Deficit = Fiscal Deficit β Interest Payment
Chapter: Balance of Payments
Balance of Trade = Exports of Goods β Imports of Goods