Macroeconomics

Macroeconomics is the branch of economics that studies the workings of economics as a whole.  In other words, studying the global economy of a country or zone (consisting in several countries), to carry out this study it concentrates on the functioning of a series of individual markets and the interrelationships that occur between them.

Macroeconomic models

An economic model is a theoretical representation of the supposed operation of the various processes of the economy, using variables and the logical relationships between them.  As in other fields, they are simple representations that help in the understanding of more complicated systems, often using mathematical techniques.

 

Given that there are many and complex economic relations possible, simplifying assumptions are made to broadly study what is happening to the different economic variables involved when changes in the economic environment occur. Depending on the assumptions that are made, which relationships are considered or not, what kind of effects these relationships transmit, how this transmission is done, and what assumptions are made about the real world variables used, Some model or other is obtained from the wide variety of models that predict or explain different things about the operation of the macro economy.

 

The first global economic model project, the Wharton Econometric Forecasting Associates (Wharton partners for econometric forecasting) was initiated by Lawrence Klein and was mentioned in his nomination for the economics prize in memory of Alfred Nobel of the Bank of Sweden in 1980.

Gross National Product (GNP)

The value of all goods and services produced by residents of a country during a specified time, usually one year.

Gross Domestic Product (GDP)

It is the total monetary value of current goods and services a country produces during a period (typically a quarter or a year). The GDP is a magnitude of flow, in that only goods and services produced during the study are taken into account. GDP does not take into account goods or services that are the result of informal work (housework, trade exchanges between acquaintances, etc.)..

 

The GDP equation is as follows:

GDP = C + I + PE + X + M

 

Where:

C = Consumption                              I = Income                  PE = Public Expenditure

X = exports                                        M = imports

In closed economies GNP coincides with the GDP. But in open economies to the same is not true, but we can get the GDP through the GNP relationship is as follows:

GNP GDP = + PNFE

Where PNFE is the product of external factors, which is the addition to what domestic companies generate abroad and what it is foreign companies take out of the country.

Nominal GDP and real GDP

Nominal GDP is the monetary value of all goods and services produced by a country or an economy at current prices in the current year the goods are produced. However, in situations of high inflation, a substantial increase in prices, even if production does not increase too much, can give the impression of a substantial increase in GDP.  To adjust the GDP for inflation, real GDP is defined as the monetary value of all goods and services produced by a country or an economy at constant prices. This calculation is carried out by deflating the value of GDP depending on the rate of inflation (or computing the value of assets regardless of the year of production with the prices of some base year).

 

GDP	=	Nominal	GDP
Deflator		Real	GDP

 

 

Per capita GDP

Per capita GDP (also known as per capita income) is a figure that attempts to measure wealth. It is calculated simply as the total GDP divided by the number of inhabitants

Consumption

Strictly speaking, consumption is the action and effect of consuming or spending, whether foodstuffs and other genres of ephemeral life or energy and by consuming we destroy the product, use edible goods to satisfy needs or desires, or spend the energy of an energy product.

 

In purely economic terms consumption is defined as the final stage of the economic process, especially of the product, defined as the moment that a product or service gives some use to consumers. In this sense there are goods and services that are directly destroyed in the act of consumption, while in others what is happening is that consumption consists of its transformation into another type of goods or services.

 

Consumption, therefore, includes purchases of goods and services by any economic subject (both private and public organizations). It means meeting the needs present or future and is considered the last economic process. It is a circular kind of activity as long as man produces in order to consume and consumption in turn generates production.

 

 

Income

When income comes from productive activities it can be classified into several types:

Marginal Income: Created by increased production in one unit.

 

Average income: Income that is obtained, on average, per unit of product sold, i.e. is the total income divided by the total units sold.

 

Marginal product Income: Income generated by the use of an additional unit of any factor of production (labor, capital), for example, the use of an extra worker, etc…

 

Generally, individuals, families, businesses, etc.., seek to increase their incomes. If they rise, their consumption and savings may increase, leading, in many cases, a better standard of living and welfare.

 

States also receive income, known as government revenue. The state receives revenue by collecting taxes from the sale of goods produced by public companies, utilities that generate these, for property sales or rental, by tax fines, by issuing bonds or obtaining credit, among others. When revenue comes from taxes it is called tax revenues, on the other hand, when it comes from sources other than taxes it is called non-tax revenue. With revenue, governments can spend their expenses, investments, etc..

 

Revenues can also be classified as regular or extraordinary. The regular income is that which is obtained routinely, for example, the wage of a worker who has a stable job, or sales from one company to a customer who buys periodically or on a regular basis. The extraordinary revenues are those that come from special events, such as an unexpected business by a person or a bond offered by a government.

Public Expenditure

Public expenditure is the expenditure made by a government entity, authorized by a competent authority in order to meet collective interests, as a function of the state.

 

Public spending is the flow of the negative components of the results of finances and assets, that occur throughout the operations by nature known as budgeted or non budgeted, as a result of the change in the emergence of assets or liabilities, which involve a decrease in equity.

 

Therefore, this term is reserved for those flows that must be charged to the result of the aforementioned entity through management accounts. Not to be confused with the term "budget expenditure": which means there are expenses that are non budgetary expenditure (extra budgetary expenditure).

 

 

Exports

In economics, an export is any good or service sent to another part of the world, for commercial purposes. The export is the legitimate traffic of goods and national services of a country intended for use or consumption abroad. Exports can be any product sent outside the borders of a State.  Exports are usually carried out under specific conditions.

 

 

Imports

In economics, an import is any goods or services received from another country, province, town or another part of the world, often for exchange of sales or increased local services. The imports of products or services are supplied to local consumers by foreign producers.

 

Imports are the legitimate transportation of goods and national services exported by a country intended for use or consumption within another country. Imports can be any product or service received within the boundary of a state for commercial purposes. Imports are usually carried out under specific conditions...

 

Imports enable citizens to buy products that their country does not produce, or cheaper or of better quality. In making imported products cheaper, automatically allows citizens to save, invest or spend on new products, increasing the wealth of the population.

 

 

Price Level

Measures the relationship between the price in a given year and prices of a base year. It is calculated by dividing the price of the current year for the price of the base year and multiplying by 100.

 

Price indices are used to convert nominal terms in real terms. Price index is an indicator showing the variation in prices of a product or set of products between two periods of time.

Over time we see that the same goods are priced differently and generally increase. The good is the same, but its monetary valuation (price) changes. If we want to properly analyze the evolution of economic activity, we must separate the influence of prices on the values of economic aggregates (goods and services).

 

 

Economic Variables

Is a variable that can be explained within the economic model from its relations with other variables.

 

 

External Variables

 

These are which cannot be explained within an economic model but are regarded as given. They are also called autonomous and independent variables