Macroeconomics and Public Sector Economics: Key Concepts

Posted on Dec 3, 2024 in Economy

Item 5

Macroeconomics

Focusing on the study of the economic situation nationally and internationally.

Key Macroeconomic Aggregates

  • Magnitude: Expresses the result of an economic activity. Aggregates are formed by the sum of the assessments of what different economic agents bring to the economy.
  • National Accounts: Measuring economic activity through the registration and calculation of transactions by different operators.
  • Domestic Product: All goods and services generated by companies in one country.
  • GNP (Gross National Product): The value of all final goods and services accruing to firms from a country during a specified period, usually one year.
  • Finished Goods: Goods supplied to consumers that are not processed or resold.
  • Value Added: The value incorporated into raw material by labor and capital. Obtained by subtracting the value of intermediate goods used in production.
  • Underground Economy: Economic activity outside regulation and market control, to avoid tax and labor regulations.

National Product Calculation

National Product = C + I + G + X – M

  • Euros at Current and Constant Prices: National Product in current euros reflects the nominal value of production under existing prices. In constant euros (real), it is measured in terms of actual prices in a base year.
  • GNP vs. NNP: GNP is calculated without depreciation of capital equipment. NNP (Net National Product) accounts for the loss of value of these assets.

GDP (Gross Domestic Product) = Private Consumption + Gross Investment + Government Consumption + Exports – Imports

NNP (Net National Product) = Private Consumption + Net Investment + Government Consumption + Exports – Imports

Net Investment = Gross Investment – Depreciation

Understanding GDP and Related Concepts

  • GDP: The value of all goods and services produced within a country, by both domestic and foreign factors.
  • GDP = C + I + G + X – M
  • GDP = GNP + RED – RNF
    • RED = Income generated by foreign residents within the country
    • RNF = Income generated by national factors outside the country
  • National Income (NI) = Salaries and Wages + Rents + Interest + Corporate Profits
  • Personal Disposable Income (PDI) = NI – Indirect Taxes – Social Security Contributions – Business Benefits + Undistributed Net Transfers Received
  • Indirect Taxes: Taxes paid when purchasing goods or services (e.g., VAT).
  • Subsidies: Government transfers to enterprises to promote their business.
  • Direct Taxes: Taxes paid on the possession of an asset or collection of rent.
  • Transfers: Payments from the public sector to families and net remittances from abroad.
  • Per Capita Income: National income divided by the population.
  • Per Capita Income (PCI) = National Income / Population
  • Income Distribution: How income is distributed among the population.
  • GDP per Capita by Purchasing Power Parity (PPP): GDP per capita considering real purchasing power and price levels in each country.
  • Short-Term Economic Indicators: Identify recent changes in economic variables (monthly or quarterly).
  • Economic Situation: Current economic trends in a short period.

Item 6

Public Sector Economics

  • Public Sector: A nation’s economic activities within the governmental sphere.
  • Deregulation: Gradual reduction of public administration standards regulating the economy.
  • Economic Policy: Government intervention in economic affairs to achieve objectives.

One purpose of economic policy is any general aspiration for a society seeking to achieve.

  • Complementarity: When achieving one goal prevents or hinders another.
  • Conflict: When achieving one goal prevents or hinders another.

An instrument of economic policy is any variable that governments can control to achieve their goals.

  • Discretionary Action: Government action not previously regulated.
  • Automatic Stabilizer: Factors that soften economic expansions or reductions without discretionary measures.
  • Fiscal Policy: Modifications in government revenues and expenditures to influence economic activity.
  • Aggregate Demand: The sum of private consumption, investment, government spending, and net exports.
  • State Budgets: Documents showing planned expenses and revenue for the Central Public Sector for a year.
  • Public Expenditure: Payments by the public sector due to its intervention in the economy.
  • Relief: Reduction in taxes to favor certain social groups or businesses.
  • Public Revenue: Resources received by the Public Sector to meet expenditure commitments.
  • UGT (General Workers’ Union): A Spanish labor union with historical roots in the Spanish Socialist Party (PSOE).
  • European Commission: An independent institution representing the general interest of the European Union.
  • Subsidy: Public provision of economic assistance.
  • Personal Income Tax: Taxes on the income of individuals.
  • La Bolsa: Financial institution for buying and selling securities.
  • Unions: Democratic organizations of workers defending their social, economic, and professional interests.
  • Bulletin: Publication dealing with scientific, artistic, historical, or literary topics.
  • Interest: An index measuring the return on savings or cost of credit (given in percent).
  • Recession: Decrease in a country’s economic activity, technically when GDP growth is negative for three consecutive quarters.