Capitulo 13

Economía
Capítulo 13

Macroeconomics — the study of a national economy.

-​ Allocation of a nation’s resources →five main variables

Variables → Macroeconomics’s objectives

●​ Economic growth→ A steady rate of increase of national income
●​ Employment→ A low level of unemployment
●​ Price stability→ A low and stable rate of inflation
●​ National debt→ A sustainable level of government [national] debt
●​ Income distribution→ An equitable distribution of income

Measurement of national income

Growth measured: Gross Domestic Product

How to measure the country’s growth
→The total value of all final goods and services produced
by a country in a year

❖​ Output method

Measures the actual value of the goods and services produced.

Calculated by: summing all of the value added by all the firms in an economy.
At each stage of a production process we deduct the costs of inputs, so as not to “double count” the
inputs.
Data usually grouped according to the different production sectors in the
economy:
-​ agriculture and mining (primary sector)
-​ manufacturing (secondary sector)
-​ services (tertiary sector)

❖​ Income method
This measures the value of all the incomes earned in the economy.

National Income=Wages+Rent+Interest+Profits

❖​ Expenditure method: Expressed as GDP =’ C+I+G+(X-M)

C: consumers I: investments G: Expenses (Gastos) X: Exportations M: Importations

↳Net exports↵
 Difference between gross domestic product (GDP) and gross national income (GNI)

●​ Gross Domestic Product (GDP) measures all economic activity within a country's borders, no
matter who owns the businesses.​

○​ Example: If an Indian company operates in Canada, its earnings count in Canada’s GDP,
because the production happens there.
○​
●​ Gross National Income (GNI) measures all income earned by a country’s people and businesses,
no matter where they are in the world.​

○​ Example: If an Indian company earns money in Canada, that income counts in India’s
GNI, because the company is owned by Indians.

💡 Key Difference:
●​ GDP = Where production happens
●​ GNI = Who owns the production

Difference between:
nominal GDP and real GDP
nominal GNI and real GNI

Inflation= overstate the value of GDP→ GDP rises → We take the Nominal GDP

●​ Nominal GDP: The total value of goods and services produced in a country at current market
prices, without adjusting for inflation.
●​ Real GDP: The total value of goods and services produced, but adjusted for inflation to reflect
true economic growth.

💡 Example: If a country’s nominal GDP increases from $1 trillion to $1.1 trillion, but inflation was
5%, the actual economic growth (real GDP) would be lower than the 10% increase shown in nominal
terms.

●​ Nominal GNI: The total income earned by a country’s residents and businesses at current
market prices.
●​ Real GNI: The total income earned, but adjusted for inflation to measure real income changes.

Measure GDP or GNI per capita

𝐺𝐷𝑃/𝐺𝑁𝐼
𝑆𝑖𝑧𝑒 𝑜𝑓 𝑡ℎ𝑒 𝑝𝑜𝑝𝑢𝑙𝑎𝑡𝑖𝑜𝑛
Example:

●​ China’s GDP = $13,457 billion

●​ Canada’s GDP = $1,733 billion​
→ China’s economy is 7.75 times larger than Canada’s.​

●​ China’s GDP per capita = $9,633

●​ Canada’s GDP per capita = $46,733​
→ The average income per person in Canada is almost 5 times higher than in China.​

Conclusion: While China has a much larger economy overall, Canada’s GDP per capita is higher,
indicating a better standard of living for its citizens.

Why are national income statistics gathered?

National income statistics are crucial for measuring economic performance and guiding
decision-making.

The United Nations provides guidelines through the System of National Accounts (SNA) to ensure
consistency.

Uses of National Income Statistics:

1.​ Economic "Report Card”: Shows a country’s economic performance

2.​ Government Policy: Helps in designing economic policies and strategies.
3.​ Economic Forecasting: Economists use data to develop models and predict future trends.
4.​ Business Planning: Companies analyze statistics to forecast demand and plan investments.
5.​ Historical Analysis: Helps track economic progress over time
6.​ Living Standards Evaluation: Higher national income is often linked to better living standards
7.​ Country Comparisons: National income data are widely used to compare economies globally.

Limitations of National Income Statistics

1. Accuracy Issues

➢​ Data collection challenges: National income data comes from various sources (tax claims, sales
data, output reports)
➢​ Revisions over time: Initial figures may be inaccurate and later adjusted when more data
becomes available.
➢​ Developing countries: Data collection is often less reliable, making national income figures less
precise.
2. Difficulty in Making Comparisons

➢​ Unrecorded/Under-recorded Economic Activity:

○​ Informal sector: Many economic activities (like self-employment, subsistence farming,
and home repairs) aren't recorded.
○​ Illegal activities: Drug trafficking, unregistered labor, and tax evasion is not reflected in
GDP
○​ Cross-country variations: Countries differ in how they record economic activity, making
comparisons less reliable.

3. Inappropriateness for Measuring Living Standards

➢​ Does not reflect income distribution: A country may have a high GDP, but if income is
unevenly distributed, most people may not benefit.
➢​ Ignore non-market activities: Activities like volunteer work, household chores, and subsistence
farming contribute to well-being but are not included in GDP.
➢​ Does not account for environmental factors: GDP may rise due to activities that harm the
environment, but this does not indicate an improvement in quality of life.
➢​ Price level differences: The cost of living varies across countries, so comparing GDP without
adjusting for purchasing power can be misleading.

4. External Costs (Negative Effects of Growth)

➢​ Pollution & congestion: Air and water pollution, along with traffic congestion, reduce quality of
life, yet GDP does not account for these negative effects.

5. Other Quality of Life Concerns

➢​ Longer working hours: If GDP growth happens due to longer work hours and fewer holidays,
people may earn more but enjoy life less.
➢​ Unpaid work is ignored: Volunteer work, childcare, and elder care contribute to well-being but
are not included in GDP.

6. Composition of Output (What GDP is Spent On)

➢​ Not all production benefits citizens:

○​ A country may spend heavily on military and capital goods, which do not directly
improve living standards.
○​ More spending on consumer goods and services may be a better indicator of improved
well-being.
 The Business Cycle (Trade Cycle)

Refers to the variation in economic activity, measured by changes in real GDP.

It consists of four key phases:

1. Boom (Peak)

●​ High economic growth, increasing GDP.

●​ High employment, businesses expand, and
wages rise.
●​ Rising aggregate demand can lead to
inflationary pressure (higher prices).
●​ Governments may take action to slow growth to
prevent overheating.

2. Recession (Two consecutive quarters of

negative GDP growth)

Country's economy shrinks for at least six months . This means:

●​ Falling aggregate demand → Businesses reduce output.

●​ Unemployment rises as firms lay off workers.
●​ Lower spending → Economic activity slows.
●​ Inflation decreases (or even deflation).

3. Trough (Lowest point of the cycle)

●​ GDP stops falling but remains low.

●​ Government spending, exports, and savings help stabilize the economy.
●​ Lower interest rates encourage borrowing and investment.

4. Recovery

●​ GDP starts increasing again at a rising rate.

●​ Businesses hire more workers → Unemployment falls.
●​ Consumer spending increases, boosting aggregate demand.
●​ The cycle repeats, leading back to a boom.

Measuring Economic Well-Being

GDP doesn’t tell the full story of people’s well-being. That’s why economists use other measures to
understand how happy, healthy, and sustainable life is in different countries.

1. OECD Better Life Index

●​ The OECD created this index to compare well-being across countries.

●​ It looks at 11 important factors that affect people’s lives, like housing, income, jobs, education,
health, environment, and safety.
●​ This index helps people see how well different countries are doing in terms of both material
wealth and quality of life.
2. Happiness Index

●​ Yearly report to rank countries based on happiness.

●​ Data from surveys that ask people how satisfied they are with life.

3. Happy Planet Index (HPI)

●​ This index measures how efficiently countries provide long, happy

lives for their people while using the least environmental resources.
●​ Goal: balance happiness and sustainability
●​
●​ It uses four factors:
1.​ Well-being – How happy people feel about their lives.
2.​ Life expectancy – The average number of years people live.
3.​ Inequality of outcomes – The inequalities between people within a country.
4.​ Ecological footprint – How much impact people have on the environment.