Microeconomics and Macroeconomics: Key Concepts and Variables
Microeconomics and Macroeconomics
Microeconomics studies decision-making by economic agents and the relationships between offerors and applicants in its context (the market). Macroeconomics is the part of economics that studies the functioning of a country in its economic sense and analyzes the economic problems from a global perspective.
Economic Variables
The overall result of the economic actors is reflected in large houses named macroeconomic variables. The set of economic variables are collected in a document known as National Accountability. Macroeconomic variables are all indicators or descriptors that provide information about the behavior of consumption, investment, production, rent, or trade of a country. They have a time dimension (vary), which, unlike constants, means that they vary from year to year. They are macroeconomic because they speak of studying together, providing an overview of the economic situation.
Gross Domestic Product (GDP)
This is the most significant variable and most used of all included in the National Accounting, dealing and informing in the economic activity of a country, through the annual production value of goods and services held at the National Accounting interior. GDP can be defined in three ways:
- Sum of gross value added of various economic sectors over the imposed unless the money on products.
- Sum of final uses of goods and services (consumption and gross capital), plus exports and minus imports of goods and services.
- Sum of compensation of employees, gross operating surplus and of mixed incomes and taxes on production and imports minus grants from the total economy. (INE, 2003)
Production and Value Added
Production can be understood as the process of transforming some primary elements, adding a value to make way for a new product, with a greater value. In the production of any item, certain products are normally used as raw materials and others that form the so-called intermediate consumption. The value of capital employed in the form of machinery, tools, buildings, transportation, and work gives way to its final value. The value incorporated is called value added.
The Reins of Production
Factors of production derive income from their participation in the productive process, and workers (labor) receive wages and capital owners (entrepreneurs) get benefits. The remuneration of the factors is made from revenues generated by sales. In an economy in isolation from the outside, i.e., no sale or purchase, the value of what is produced matches the value of what is spent and the value of what you earn.
Production = Income = Expenditure
Lorenz Curve
The Lorenz curve informs on income equidistribution among families in a country (personal distribution). If this is equal, the graphical representation would be a straight line. The more the curve is separated, the more unequal the distribution.
The Interdependence of Economic Activity
The input-output tables are a tool that describes the actual functioning of the economy during a period of time, analyzing the relationships and dependencies that hold some other sectors and the behavior of consumption and investment of society, and their relations with the outside. A horizontal reading of the tables will inform us of sales of goods and services of intermediate character that makes each sector with other sectors as well as the destinies of the final production. We also know the amount of goods that are intended for sale abroad. They are the outputs. The reading of vertical columns will inform us of consumption or purchases that each sector has to do, and the payment to the factors involved in the production. These are the inputs.
Functions of the State
- Audit Committee: In general, it can be said that collecting money from individuals and then spending it is how the state acts in economic life.
- Regulates: Another different way of acting is to create laws, or set the legal framework in which society moves.
- Supplier of Goods and Services: The state also acts as an economic agent, through their businesses, producing goods and offering services to the community.
- Redistributive: Carrying out a redistribution of income through progressive taxes, and spending on social aspects, making them pay more who are better off and providing some social services to those who have no means to acquire them.
- Stabilizer: It is also the one who sets economic policy, or at least is able to focus on it, through the budgets and monetary policy.
Human Development Index
The Human Development Index (HDI) is an indicator that uses the United Nations Development Programme (UNDP), for “ordering” the different countries of the world, according to their level of development. This method of measuring human development focuses on three essential elements: longevity, knowledge, and decent levels of living. Human development means creating an environment where people can realize their potential and live according to your needs and interests. This mode of development differs completely from the concern of accumulating assets and financial wealth and material, which is what GDP measures.
The essential capabilities for human development are:
- Living a long and healthy life.
- Having knowledge.
- Gaining access to resources necessary to achieve a decent standard of living.
- Being able to participate in community life.