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Cheat sheet

CLEP Principles of Macroeconomics cheat sheet

A condensed reference for the formulas, graph-reading rules, and must-know facts most worth reviewing before exam day.

Six formulas to know

  • Spending multiplier: 1 / (1 - MPC) or 1 / MPS. Use it for government spending or autonomous spending changes.
  • Tax multiplier: -MPC / (1 - MPC). It is negative because higher taxes reduce consumption.
  • Money multiplier: 1 / required reserve ratio. A 10% reserve ratio gives a maximum multiplier of 10.
  • CPI: (cost of market basket in current year / cost of market basket in base year) x 100.
  • Real GDP: nominal GDP adjusted for price-level change. If prices rise, real GDP grows less than nominal GDP.
  • Unemployment rate: unemployed / labor force x 100. Labor force = employed + unemployed, not the whole adult population.

Four graphs that matter

  • AD/AS: AD shifts right with more C, I, G, or net exports; SRAS shifts left when input costs rise; LRAS is vertical at potential output.
  • Money market: money supply is vertical; money demand slopes down. Expansionary monetary policy shifts MS right and lowers nominal interest rates.
  • Phillips curve: short-run tradeoff between inflation and unemployment; long-run Phillips curve is vertical at the natural rate.
  • PPC: points on the curve are efficient, inside is inefficient, outside is unattainable; outward shifts mean growth.

Policy and trade quick decisions

  • Recessionary gap: output below potential. Expansionary fiscal or monetary policy shifts AD right.
  • Inflationary gap: output above potential. Contractionary fiscal or monetary policy shifts AD left.
  • Crowding out: government borrowing can raise interest rates and reduce private investment.
  • Comparative advantage: choose the producer with lower opportunity cost, not the one who can produce more absolutely.
  • Currency appreciation makes imports cheaper and exports more expensive; depreciation does the reverse.

Practice this first: Measuring economic performance - GDP, CPI, inflation, unemployment, and business-cycle concepts are the base layer for policy questions.

Now put it to work - practice CLEP Principles of Macroeconomics free

Reviewing the sheet is step one. Passers are usually hitting about 70-80% on realistic practice before test day, so the fastest way to know you are ready is to start answering real questions.