Macroeconomics: GDP, Employment, and Economic Indicators

Posted on Apr 2, 2025 in Economy

Macroeconomics: This study deals with the overall functioning of the economy of a territory, region, or country through economic indicators that measure production and prices.

Production => GDP Employment Rates. Microeconomics studies the behavior of prices and products. If prices increase, people can’t buy as many things with the same amount of money. This can cause companies to reduce production and potentially lay off workers, leading to lower employment.

Production => GDP. GDP is the monetary value of all goods and services produced by a country in a specific time period, generally a year.

Methods of Expenditure

To calculate production, we consider all purchases made by economic agents. Therefore, expenditure equals production.

Expenses = Purchases

GDPmp = C + I + G + (X-M) = Market price GDP values production at the final market price.

  • C = Household consumption: The total value of expenditure by families to meet their needs.
  • I = Business investment: The total value of spending by companies on production goods.
  • G = Public Expenditure: The total value of expenditure by the state or public sector.
  • (X-M) = Net exports: The difference between exports and imports of goods and services made by a country.

Value Added

Production -> Sales -> Expenses. A potential issue with summing all sales of all firms is duplicated products. To avoid this, we only consider the value added by companies to products.

Method of Income

The money spent by economic agents is received by businesses, which remunerate factors of production. Therefore, we can calculate a country’s production by summing the income families receive.

GDPfc = Wages + Interest + Profits + Rent + Business Grants

Entrepreneurial profits are a reward for producing the goods and services that society demands.

Grants are non-refundable quantities that firms receive from the public sector.

Public sector action influences the prices of goods and services compared to the market. This influence is reflected through two important adjustments:

  1. The establishment of indirect taxes (VAT).
  2. Official subsidies.

GDPfc = GDPmp + Direct Taxes – Subsidies

Difference Between Nominal GDP and Real GDP

Growth rate formula: (Real GDP(x) – Real GDP(xn)) / Real GDP(xn)

Average Level of Prices: Inflation

Inflation is a generalized and sustained increase in the level of prices, affecting almost all goods and services. It is not attributed to temporary causes at a specific time and is measured with economic indicators.

To calculate and track inflation, follow these steps:

  1. Identify a list of goods and services consumed annually by most families (the “basket”).
  2. Assign a percentage to each item based on its relative importance in consumption.
  3. Calculate the average prices of these goods year after year.