Understanding Macroeconomics: Key Concepts and Indicators
Understanding Macroeconomics
Macroeconomics focuses on the study of the economic situation nationally and internationally. It uses a number of variables to determine the state of the economy; these quantities are the macroeconomic variables. In Spain, measuring the value of these quantities is performed by the National Institute of Statistics and the National Accounts Laboratory.
The Circular Flow of Income
A constant exchange of goods and services, along with their payments, is created between companies and families. These economic agents promote two types of exchanges:
- Real flow: Families provide factors of production to enterprises, and enterprises produce goods and services.
- Cash flow: Companies offer payments to families for the factors of production used and get them to pay the price of goods and services provided.
The National Product
The aggregate of such goods and services generated by companies in a country is known as the national product.
Measuring and Components
The Gross National Product (GNP) is the value of all final goods and services that companies in a country obtain during a period of time, usually one year.
Aggregate Supply and Macroeconomic Equilibrium
Aggregate supply is the total quantity of goods and services that companies of a country are willing to produce and sell in a given period of time, given existing prices.
Aggregate demand: The ideal is to achieve a balanced position in the national economy in which the productive capacity meets the existing demand in society.
Balancing between macroeconomic variables: If, at a given price level, aggregate supply satisfies producers and consumers.
Principal Macroeconomic Variables
- National product: Considers the production of goods and services accruing to firms of a country, both inside and outside the company.
- Gross Domestic Product (GDP): Includes items manufactured within a nation, both by the country itself and by foreign firms.
- National income: Analyzes all income received by domestic factors of production.
- Disposable income: Indicates the share of national income that is available to citizens after paying income tax and national insurance contributions.
- Per capita income: Indicates the average income per inhabitant.
GNP and Net National Product
The national product, or GNP, is calculated without taking into account the depreciation that capital equipment companies of a country have suffered. However, to calculate the Net National Product (NNP), the loss of value suffered by these assets is taken into account.
Net investment is obtained by subtracting the investment in capital goods that companies have made from the loss of value that such goods have suffered due to their use, i.e., their depreciation.
GDP is the value of all goods and services produced within a country, by both domestic and foreign factors.
Income Distribution
The per capita income gives the average standard of living of the inhabitants of a country, but it does not report how this is distributed among its population.
The distribution of income indicates how income, or the national production, is distributed among the population of a country.
Personal Income Distribution
Personal income distribution shows how income is distributed among different social groups. Equity in personal income distribution is very important as it reflects the level of comfort that exists.