Understanding Microeconomics, Macroeconomics, and Key Economic Indicators

Posted on Feb 7, 2025 in Economy

Microeconomics and Macroeconomics

  • Microeconomics: Studies and analyzes the behavior of individual economic agents.
  • Macroeconomics: Studies and analyzes the performance of the economy as a whole. It analyzes indicators such as GDP (Gross Domestic Product), unemployment rate (EPA), and CPI (Consumer Price Index) to diagnose the economic situation. Macroeconomics establishes relationships between quantities such as production, income, expenditure, and investment. It analyzes the causes and consequences of short-term income fluctuations and the determinants of long-term growth. It is an essential tool for governments to set and assess their political and economic objectives, and for companies and individuals to plan and evaluate their strategies.

National Wealth

National wealth is the value of assets (human capital, natural resources, productive and financial resources, money, and movable assets) minus the value of liabilities (debt). It is measured through national accounts, an interconnected system of accounts that records the evolution of macroeconomic fundamentals. It is the foundation of economic welfare. Governments need to measure its amount, distribution, and evolution.

GDP (Gross Domestic Product)

GDP is the market value of all final, legal goods and services produced within a country over a period of time.

  • Market Value: Uses a common currency, such as the euro, and takes the market price.
  • Final Goods and Services: Finished goods ready for use or consumption (excluding intermediate goods).
  • Legal Goods: Non-prohibited goods with an established market.
  • Produced Inside: Refers to what occurred within the borders of the country, regardless of who produced it. “National” refers to what is produced by the country’s factors of production, regardless of where it is produced.
  • During a Given Period: GDP is measured annually but is often calculated quarterly for monitoring and control.

GDP at market prices vs. GDP at factor cost

  • GDP: Gross output produced within the borders of a country, regardless of who produced it.
  • GDP: Gross output produced in any country by people of that country.

Inflation

Inflation is a continuous increase in the general level of prices of goods and services.

Causes and Types of Inflation

  • Demand-Pull Inflation: Occurs when demand exceeds supply.
  • Cost-Push Inflation: Occurs when prices of production factors increase.
  • Built-In Inflation: Occurs when consumers foresee a price increase.

Level Indicator

Although there are several ways to measure price changes, the key indicator is the CPI (Consumer Price Index).

Deflation

Deflation is a constant decline in the general level of prices of goods and services, the opposite of inflation.

EPA (Labour Force Survey)

The EPA is a quarterly survey conducted on approximately 64,000 households. Data extracted includes:

  • Active population (employed or unemployed)
  • Inactive population (retired, students, homemakers, disabled, those who do not want to or are not able to work)