Important Formulas in Macroeconomics | Class 12 (original) (raw)

Last Updated : 6 May, 2026

Chapter 1: Introduction

**1. **Net Investment**= Gross Investment – Depreciation

**2. **Net Indirect Tax = Indirect Taxes - Subsidies

**3. **Market Price**= Market Price = Factor Cost + Net Indirect Taxes

Factor Cost + (Indirect Taxes - Subsidies)

**4. **Net factor Income from Abroad (NFIA)**= Factor income earned from abroad – Factor income paid abroad

Net Compensation of Employees + Net Income from Property and Entrepreneurship + Net Retained Earnings

**5. **National Income (using NFIA) = Domestic Income + NFIA

**6. **Depreciation = Gross Value - Net Value

**7. **Leakagesin 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 2 : National Income Accounting

1. **National Income and Related Aggregates

Gross Domestic Product at Factor Cost (GDPFC) = GDPMP – Net Indirect Taxes
Net Domestic Product at Market Price (NDPMP) = GDPMP – Depreciation
Net Domestic Product at Factor Cost (NDPFC) or Domestic Income = GDPMP – Net Indirect Taxes – Depreciation
Gross National Product at Market Price (GNPMP) = GDPMP + Net Factor Income from Abroad
Gross National Product at Factor Cost (GNPFC) = GNPMP – Net Indirect Taxes
Net National Product at Market Price (NNPMP) = GNPMP – Depreciation
Net National Product at Factor Cost (NNPFC) or National Income = GNPMP – Net Indirect Taxes – Depreciation

Domestic Income

Income from Domestic Product accruing to Private Sector = NDPFC - Income from Property and Entrepreneurship accruing to Government Administrative Departments - Savings of Non-Departmental Enterprises

**3. Private Income = Factor Income earned (within domestic territory + from rest of the world) + Transfer Income received (within domestic territory + from rest of the world)

= 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 Income - Personal Taxes Miscellaneous Receipts of Government

= Personal Consumption Expenditure + Personal Savings

**5. National Disposable Income = National Income + Net Indirect Taxes + Net Current Transfers from the rest of the world

= National Consumption Expenditure + National Savings

6. **Gross National Disposable Income = Net National Disposable Income + Depreciation

7. Product or Value Added Method of calculating National Income

**GDP MP using Value Added Method (∑GVAMP) = GDPMP
**Value Added = Value of Output – Intermediate Consumption
**Value of Output when the whole output is sold in a financial year = 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 – Opening Stock

**Value of Output = (Quantity × Price) + Change in Stock
**National Income using Value Added Method( NNPFC) = GDPMP – Depreciation – Net Indirect Taxes + NFIA

=Domestic Income or NDPFC + NFIA

8. Expenditure Method of calculating National Income

**GDP MP using Expenditure Method(GDPMP) = ∑ Final Expenditure

∑ 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) = Household Final Consumption Expenditure + Non-profit Private Institutions Final Consumption Expenditure
**Government Final Consumption Expenditure (GFCE) = Intermediate Consumption of Government + COE paid by Government +Direct purchases from abroad for embassies and consulates located abroad – Sale of goods and services produced by general government
**Gross Domestic Capital Formation (GDCF) = Gross Fixed Capital formation + Inventory Investment
OR

= Gross Business Fixed Investment + Gross Residential Construction Investment + Gross Public Investment + Inventory Investment

**Net Exports (X – M) = Exports – Imports or (X-M)
**National Income using Expenditure Method (NNPFC) = ∑Final Expenditure or GDPMP – Depreciation – Indirect taxes + NFIA

= Domestic Income or NDPFC + NFIA

**9. Income Method of calculating National Income

**Profit = Corporate Tax + Dividend + Retained Earnings
**Operating Surplus = Rent + Royalty + Interest + Profit

= Value of Output – Intermediate Consumption – Compensation of Employees – Mixed Income – Consumption of Fixed Capital – 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

National~Income~at~Constant~Price=\frac{National~Income~at~Current~Price}{Current~Price~Index}\times{100}

11. **Nominal GDP or GDP at Current Price

Nominal~GDP=\frac{Real~GDP\times{Price~Index}}{100}

12. **Real GDP or GDP at Constant Price

Real~GDP=\frac{Nominal~GDP}{Price~Index}\times100

13. **GDP Deflator or Price Index =

GDP~Deflator~(or~Price~Index)=\frac{Nominal~GDP}{Real~GDP}\times100

Chapter 3 : Money and Banking

1. Measures of Money Supply

**M 1 = Currency and coins with public + Demand deposits of commercial banks + Other deposits with Reserve Bank of India
**M 2 = M1 + Savings Deposits with Post Office Saving Bank
**M 3 = M1 + Net Time Deposits with Banks
**M 4 = M3 + Total Deposits with Post Office Saving Bank

2. Money Multiplier

Money~Multiplier=\frac{1}{LRR}~or~\frac{1}{r}

Chapter 4 : Determination of Income and Employment

1. Aggregate Demand (AD) = C + I + G + (X - M)

= Private Consumption Expenditure + Investment Expenditure + Government Expenditure + Net Exports (Exports - Imports)

**2. 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

4. Average Propensity to Consume (APC)

Average~Propensity~to~Consume~(APC)=\frac{Consumption~(C)}{Income~(Y)}

5. Marginal Propensity to Consumer (MPC)

Marginal~Propensity~to~Consume~(MPC)=\frac{Change~in~Consumption~(\Delta{C})}{Change~in~Income~(\Delta{Y})}

6. Saving Function(S) = f(Y)

Where,

S = Saving

f = Functional Relationship

Y = National Income

7. Average Propensity to Save (APS)

Average~Propensity~to~Save~(APS)=\frac{Saving~(S)}{Income~(Y)}

8. Marginal Propensity to Save (MPS)

Marginal~Propensity~to~Save~(MPS)=\frac{Change~in~Saving~(\Delta{S})}{Change~in~Income~(\Delta{Y})}

**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 (less than zero)	APC can never be less than zero, because of the presence of \bar{c}	APS can be less than zero when C>Y; i.e., before Break-even Point.	MPC can never be less than zero, as \Delta{S} can never be more than \Delta{Y}	MPS can never be less than zero, as \Delta{C} can never be more than \Delta{Y}
**Zero	APC can never be zero, because of the presence of \bar{c}	APS can be zero when C=Y; i.e., at Break-even Point.	MPC can never be zero, when \Delta{S}=\Delta{Y}	MPS can never be zero, when \Delta{C}=\Delta{Y}
**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 \Delta{C}=\Delta{Y}	MPS can never be zero, when \Delta{S}=\Delta{Y}
**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 \Delta{C} can never be more than \Delta{Y}	MPS can never be less than zero, as \Delta{S} can never be more than \Delta{Y}

**12. Equation of Consumption Function

C=\bar{c}+b(Y)

Where,

C = Consumption

\bar{c}=Autonomous~Consumption

b = MPC

Y = Income

1**3. Equation of Saving Function

S=-\bar{c}+(1-b)Y

Where,

S = Saving

-\bar{c}=Amount~of~negative~saving~at~zero~income~level

1-b = MPS

Y = Income

**14. Marginal Efficiency of Investment (MEI)

Marginal~Efficiency~of~Investment~(MEI)=\frac{Prospective~Yield}{Supply~Price}\times{100}

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

k=\frac{\Delta{Y}}{\Delta{I}}

OR

k=\frac{1}{1-MPC}

k=\frac{1}{MPS}

The maximum value of the Multiplier is ∞ when MPC = 1

The minimum value of Multiplier is 1 when MPC = 0

Chapter 5 : Government Budget and the Economy

**1. **Measures of Government Deficit

**Revenue Deficit = Revenue Expenditure – Revenue Receipts
**Fiscal Deficit = Total Expenditure – Total Receipts (except borrowings)

= (Revenue Expenditure + Capital Expenditure) – (Revenue Receipts + Capital Receipts excluding Borrowings)

= (Revenue Expenditure – Revenue Receipts) + (Capital Expenditure – Capital Receipts excluding Borrowings)

= Revenue Deficit + (Capital Expenditure – Capital Receipts excluding Borrowings)

**Primary Deficit = Fiscal Deficit – Interest Payment

Chapter 6 : Balance of Payments

1. Balance of Trade = Exports of Goods – Imports of Goods

2****. Balance on** **Current Account

Balance on Current Account

**3. Balance on **Capital Account

Balance of Capital Account