Macroeconomics: Key Indicators and Economic Activity
Introduction to Macroeconomics
Macroeconomics focuses on the overall behavior of the economic system, reflected in a reduced number of variables such as production, employment, investment, consumption, and the type of economy. This search image shows the operation of the economy as a whole. Its objective is to obtain a simplified view of the functioning of the economy, but at the same time, it allows us to know and act on the level of economic activity within a country or a group of countries.
Key Economic Indicators
- Production: Represents the monetary value of all goods produced in an economy in a given time.
- Product: The monetary value of all final goods produced in a given time (intermediate goods are not considered).
- Income: Represents the sum of the remuneration to the factors of production.
- Inflation: Represents the overall rise in the price level of most products on the market.
- Other Indicators: Employment, savings, investment, exports, imports, etc.
Product or National Income
The total value of final goods and services produced in a year in a new economy in a country. This concept is indispensable for analyzing problems such as inflation or economic growth and represents the key measure of economic activity of a country.
Calculation by the Expenditure Method
P = C (consumption) + I (investment) + X (exports) – M (imports).
This method of calculation gives an idea about the options for the economy to grow:
- Increase consumption
- Increase the level of investment
- Increase the level of exports
- Decrease imports
Gross Domestic Product (GDP)
Refers to all capital goods, and the net difference is that in this total, we subtract the value of depreciation. It is called “internal” because it takes into account everything produced within the country.
Gross National Product (GNP)
GNP consists of more remittance balance (compensation to factors of production if the owners do not reside within the border of the country and there are cash flows). Another widely used indicator to consider the quality of life of people in the country would be the GDP per capita, calculated as follows: GDP/Capita = GDP/Number of inhabitants.
Limitations of the Product
- Distribution of Income: To understand this, the Lorenz curve and Gini coefficient are used.
- Lorenz Curve: Used to determine whether the distribution is homogeneous.
- Gini Coefficient: The surface area of inequality on the surface of the designated area.
- Miscalculation (Underground Economy): These are difficult-to-measure economies that produce goods. In developed countries, it can reach 20%; in our country, it is between 30% to 40% of GDP, e.g., honey production, cheese, etc.
- Purchasing Power: Relationship between income per capita and the price of goods.
- External Factors: Reflect environmental factors that are not measured by the product, e.g., droughts, snowstorms, fires, etc.
Measurement of Inflation
Inflation is measured by indices:
- The Cost of Living Index: To manufacture it, censuses are conducted to determine the spending that a family makes (basket of products).
- The Wholesale Price Index: National (agricultural and non-agricultural), imported.
- Construction Price Index.
There is a tool called an index number that facilitates the analysis of a series of values. It is a number in which each value is compared with another taken as a basis or reference (they are mathematical analysis). At this point, you can view if the production increases, decreases, or stays through simple calculations. Expressing the percentage rate can simplify the analysis by taking the value directly above one hundred in the analysis of each year. The limitation of the index is that the analysis is limited to the value of the base.
Interest Rate
- Active: What the bank charges for a loan (22-32% annually).
- Passive: What the bank pays to decapitate savings.
The difference is called the banking spread and corresponds to the profit for the bank (gain: TA-TP). Nominal interest rate is the figure on the bank’s boards. Real interest rate (TR: TN-inflation rate). If the passive interest rate rises and investment falls, there is an inconvenience to deposit savings and earning a good profit. On the other hand, it decreases the risk of investing the money in a productive course that will also have a high active rate. If the interest rate decreases, credit companies are more accessible, and production is more profitable than depositing the money in the bank; therefore, investment in trade increases.
Balance of Payments
Trade Balance
An indicator that gives information on transactions of goods and services, and also measures the relationship that exists with other countries. BC = exports (FOB), imports (CIF). This balance should be positive, although this does not always happen.
Balance of Payments
This is another indicator that takes into account the following aspects: the current account, the capital account (investment), and the cash balance account. This, unlike the trade balance, must be balanced. Research within the country’s borders means revenue in the capital account, while investment outside the country are graduates of this account. The cash account is used to balance, so it equals zero. For example, when the capital account exceeds the current account, a surplus exists. If the reverse occurs, you must pay or balance the indicator through the cash account (primarily using the cash reserve and only through funding).