Basic concepts of macroeconomics

GROSS DOMESTIC PRODUCT

GROSS DOMESTIC PRODUCT (GDP) is the total value of current production of final goods and services within the national territory during a period of time, which is generally a quarter or a year, therefore GDP is a statistical measure of the global production of goods and services expressed in a monetary unit.

The GDP figure encompasses current production (not counting the resale of items produced in a previous period) of final goods (does not include the value of raw materials and intermediate goods) valued at market prices.

The calculation of GDP is obtained from two methods:

PRODUCT METHOD; which consists of counting only the final goods that are manufactured. VALUE ADDED METHOD; It consists of adding the added value that represents the production of each stage of the production process.

The GDP of certain services that do not go through the market cannot be calculated and there is no precise information regarding their cost, such as the work of housewives.

THE CIRCULAR FLOW OF INCOME

The value of a good acquired by a customer is equal to the income obtained by the company that produces it, such income is distributed as follows: payment of wages, capital income and purchases between companies, obtained in the case of an economy closed the following identity:

The purchases made are of two types, the purchases made by the end users of the product and those made by companies that use the products of other companies to make their own products, if the purchases of the companies are subtracted, it is obtained:

Final Demand = Added Value = Salary + Capital Income

This circular flow shows us that Families demand goods and services produced by companies and goods that supply capital labor inputs to the companies that produce them.

Purchases Goods Work Income On the other hand, the companies goods and services

and vices that are sold to Families and

Services Capital income of these are used to pay workers and the capital they need.

DIFFERENT METHODS OF MEASURING GDP

Identity (2) allows us to see a GDP in three equivalent ways:

EXPENDITURE METHOD, with this method the GDP is obtained with the sum of all the final demands for products in the economy, with various types of final demands: consumption (C), government spending (G), investment (I) and net exports (NX) therefore:

VALUE ADDED METHOD (production): Here the GDP is obtained by adding the added value in each of the sectors of the economy

INCOME METHOD: GDP is calculated from the sum of income received by economic agents as compensation for their participation in the production process.

GROSS NATIONAL PRODUCT

The Gross National Product (GNP), is the total value of income received by national residents in a given period of time, that is, it is the sum of GDP and net income received by internal factors of production (labor and capital) from outside the economy, that is, from the rest of the world.

GNP = GDP + PNI

If the national factors of production operating abroad earn more than the external factors of production operating in the national economy (GNP> 0), the GNP will be greater than the GDP taking into account the circular flow of income:

REAL VARIABLES VS. NOMINAL VARIABLES

In macroeconomics, it is necessary to make comparisons of macroeconomic variables at different moments in time or different economies at the same time, for this it is vital to know if the differences in the variables reflect differences in the price of goods or differences in the physical volumes of goods.

THE CONSTRUCTION OF PRICE INDICES

The price level is the average price level measured by a price index, one of the most common being the consumer price index (CPI) or consumer price deflator, which measures the average price level of goods and services generally consumed by an urban family.

The CPI is obtained by dividing the value of the basket in the current (nominal) year divided by the value of the basket in the base period, multiplied by 100.

CPI = Nominal Consumption Expenditure X 100 Consumption

expenditure base year

GDP DEFLATION INDEX

The GDP deflation inducer measures the average price level of all the goods and services included in the GDP. For him I calculate this index the nominal GDP is divided by the real GDP multiplied by 100

Deflation Index = NOMINAL GDP X 100

REAL GDP GDP

FLOWS AND STOCKS IN MACRO ECONOMY

A flow is an economic quantity measured as a rate per unit of time. A Stock is a quantity measured at a moment in time.

Among some flow-Stock relationships we have:

Investment- Capital stock, savings - wealth, current account-position of a country's external net assets, fiscal deficits - stock of public debt

INTERTEMPORARY ASPECTS OF THE ECONOMY: INTEREST RATES AND PRESENT VALUES.

Interest rates are simply the terms in which it is possible to exchange money or goods today for money or goods at a future date, using this interest rate a path of future flows can be translated determining its present value.