Macroeconomics Explained: Growth, Employment, and Stability
Macroeconomics: An Overview
Macroeconomics: A branch of economics that studies the problems of a country from an aggregate or overall perspective. It encompasses the following key problems:
- Growth: Economic growth creates jobs, improves living standards, and increases tax revenue, enabling the state to deliver better public services.
- Employment: Unemployment is a major problem for any country.
- Price Stability: Significant price increases (inflation) cause imbalances in the economy and harm individuals. Analysis focuses on the causes of inflation and strategies for controlling it.
- Budget Equilibrium: A budget deficit occurs when state expenditure exceeds income, leading to public debt.
- External Equilibrium: A trade deficit occurs when a country imports more than it exports, leading to foreign debt.
- Equity: Promoting a redistribution of income consistent with values of justice to correct inequalities and eliminate poverty.
- Sustainability: Ensuring that the economic activities of present generations do not jeopardize future generations.
Economic activity can be measured in three ways:
- Add the value of all goods and services produced over a period of time.
- Add the costs incurred by operators to acquire goods produced in that time.
- Sum the income or rents of its inhabitants over a period.
GDP (Gross Domestic Product):
The market value: Sum of all heterogeneous goods using their market prices.
Of all: Includes all goods and services exchanged in the market.
Goods and services: Includes both tangible goods and intangible services.
End: Only analyzes final goods.
Made: Only includes what occurred in the specified period.
In a country: Within the borders of a country.
For a certain period of time: Typically one year.
GDP: Another way to measure GDP is through value added, which is the value of a company’s product minus the value of the raw materials used.
What GDP Does Not Include:
- Domestic work
- Volunteer work
- Barter transactions
- Underground economy
The prevailing economic system at present, including in Spain, is a mixed economy. Such systems attempt to combine the advantages of market efficiency and equity.
Market Failures
Market failures: Situations where the market does not efficiently allocate available resources.
- Economic cycles: Crises affecting market economies that generate instability and insecurity, with significant consequences for workers and enterprises.
- Externalities: Many economic activities generate external effects on society and the environment that the market does not control.
- Public goods: The market is unable to provide the amount of public goods that society needs.
- Lack of competition: Monopoly situations or agreements.
- Equity: The market can lead to a very unequal distribution of income.
Economic Perspectives
Monetarists: Heirs of the tradition of classical liberalism, believe in the harmony of the market. They demand full autonomy of the market, with the state limiting itself to guaranteeing the free market and controlling the money supply and inflation. They are critical of state intervention in the economy and the utility of taxes.
Neo-Keynesians: Maintain the Keynesian approach on the need for public intervention. They believe the market alone will not guarantee equilibrium and full employment, and that the market has flaws that must be corrected. The state should intervene with fiscal and monetary measures, proposing a welfare state.
The State as a Corrector of Externalities:
a) Taxes and subsidies: Impose taxes on activities that adversely affect society or provide subsidies for activities that are beneficial.
b) Regulation of activities: The state may restrict actions that generate negative effects or promote actions that have positive impacts.