Macroeconomics Most important subjects discussed in the workgroups
Micro: Macro:
- individual choices, individual markets - aggregate of markets, economy as a whole
- bottom up - top down
- study: individuals - study: structure
Tracking the economy
Measuring the economy is not easy
- Problems of aggregation
What is the economy?
- Imagining the economy
- Different models: circular flow (cash flows), circle diagram.
GDP/GNP
• Total market value of final goods and services produced within a country in a year
• By far the most important statistic in economics
• Used for growth, recessions, etc.
Measuring the GDP I: factor income method
• Y = wages + interest + profit
• Labour: wage
• Capital: interest
• Land: rent
• Entrepreneurship: profit
➔ Measured by taxes - > adjustments needed due to underreporting
Measuring the GDP II: Expenditures
➢ Y= C + I + G + (X – Im)
• All spending in the economy by different groups
• Consumption, investment by firms, government expenditures, exports, Im= import
Measuring the GDP III: Production method (value added)
➢ Value-added= sales – inputs
• Danger of double counting -> value-added vs revenues
• Difficult to measure due to international production chains, VAT provides some measure
Two important corrections for nominal GDP:
• Correction for inflation
- Nominal and real GDP
- More money nominal vs more purchasing power (real)
• For population growth and differences
- GDP per capita
- the biggest economy: US, biggest by capita: Luxembourg
Other limitation:
• Main criticism is that it fails to measure the important things in the economy:
Bad indicator for well-being or happiness
• Does not include:
- Environmental damage, depletion of human and cultural resources (only measure flows, not
stocks)
- Informal economy (household activities, amateur activities, second-hand goods)
- internet services (time spent on internet vs the price we pay for it)
• Leisure: work creates GDP, leisure not
Micro: Macro:
- individual choices, individual markets - aggregate of markets, economy as a whole
- bottom up - top down
- study: individuals - study: structure
Tracking the economy
Measuring the economy is not easy
- Problems of aggregation
What is the economy?
- Imagining the economy
- Different models: circular flow (cash flows), circle diagram.
GDP/GNP
• Total market value of final goods and services produced within a country in a year
• By far the most important statistic in economics
• Used for growth, recessions, etc.
Measuring the GDP I: factor income method
• Y = wages + interest + profit
• Labour: wage
• Capital: interest
• Land: rent
• Entrepreneurship: profit
➔ Measured by taxes - > adjustments needed due to underreporting
Measuring the GDP II: Expenditures
➢ Y= C + I + G + (X – Im)
• All spending in the economy by different groups
• Consumption, investment by firms, government expenditures, exports, Im= import
Measuring the GDP III: Production method (value added)
➢ Value-added= sales – inputs
• Danger of double counting -> value-added vs revenues
• Difficult to measure due to international production chains, VAT provides some measure
Two important corrections for nominal GDP:
• Correction for inflation
- Nominal and real GDP
- More money nominal vs more purchasing power (real)
• For population growth and differences
- GDP per capita
- the biggest economy: US, biggest by capita: Luxembourg
Other limitation:
• Main criticism is that it fails to measure the important things in the economy:
Bad indicator for well-being or happiness
• Does not include:
- Environmental damage, depletion of human and cultural resources (only measure flows, not
stocks)
- Informal economy (household activities, amateur activities, second-hand goods)
- internet services (time spent on internet vs the price we pay for it)
• Leisure: work creates GDP, leisure not
