Principles of Macroeconomics / Unit 18 MAC 1735 worked example, 60 to 90 seconds
Working a Numerical Question
The idea
Most numerical questions on this exam use one of a short list of relationships. Recognise which one is in play, then substitute. The list is short enough to hold: the multiplier, the real interest rate, a price index, per capita growth, doubling time, and the debt as accumulated deficits.
In practice
A question gives a propensity to consume of 0.8 and asks the multiplier: one divided by one minus 0.8, which is five. A question gives a nominal rate of 6 percent and inflation of 2 percent and asks the real rate: 4 percent. A question gives a basket costing 250 in the base year and 300 now and asks for the index: 300 divided by 250 times 100, which is 120. A question gives growth of 6 percent and asks doubling time: seventy-two divided by six, which is twelve years. A question gives a gap of 250 and a multiplier of 2.5 and asks the spending needed: 250 divided by 2.5, which is 100.
Where people slip
The last one is the most frequently inverted. Closing a gap takes the gap divided by the multiplier, not multiplied by it, because the multiplier is what turns the smaller spending change into the larger output change. If an answer comes out larger than the gap, the operation was backwards.
Your place on the trail
Every lesson rests on earlier ones and opens later ones. Tap any to jump.
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