Core Concepts in Macroeconomics: GNP, NI, and DPI

Understanding Macroeconomics

Macroeconomics focuses on the study of the economic situation nationally and internationally. This branch of economics is not primarily interested in individual consumer behavior, but rather in how the consumption of the entire population evolves. From the macroeconomic point of view, the production of a single company is not as important as the total set of all goods and services produced within a country. It developed after the crisis of the 1930s, following the work of John Maynard Keynes, who argued that the state should intervene in the economy to address serious problems such as unemployment.

National Product

National Product is the total set of goods and services generated by the companies of a country.

Gross National Product (GNP)

Gross National Product (GNP) is the value of all final goods and services produced by the firms of a country over a period, typically one year.

Example Calculation (Value Added - VA): 40,000 VA + 60,000 VA + 30,000 VA = 130,000

Components of National Expenditure

GNP can have four destinations:

• Families (Consumption): Important as the largest component, approximately 56%.
• Companies (Investment): Around 31%.
• Public Sector (Government Spending): About 19%.
• Exports (Net Exports): Goods and services sold to other countries.

National Income (NI)

National Income (NI or RN) represents the total income earned by the factors of production.

NI = Salaries and Wages + Rents + Interest + Profits

Disposable Personal Income (DPI)

Disposable Personal Income (DPI or RPD) refers to the income that households actually have available for spending and saving. Taking into account that not all the income that workers and employers perceive reaches their pockets, we should understand the part of the national income that people can use for consumption and savings. This is known as Disposable Personal Income.

Example: If a person earns €18,000 annually, pays €500 for the income statement (tax) and €900 for social security, and has received €600 for social support (transfers), their disposable personal income would amount to €17,200.

(Calculation: €18,000 - €500 - €900 + €600 = €17,200)

DPI = NI - Direct Taxes - Social Security Contributions - Undistributed Profits + Net Transfers Received

Key Macroeconomic Definitions

• Final Goods: Those goods that reach consumers and are not processed further or resold.
• Value Added: The value incorporated into materials through the application of labor and capital.
• Indirect Taxes: Those taxes that are paid when purchasing goods or receiving a service. The most important is the Value Added Tax (VAT).
• Grants/Subsidies: Transfers from public administrations to businesses to encourage their activity.
• Direct Taxes: Those that are paid for the possession of an asset or collection of income, and applied directly to this.
• Transfers: Payments made by the public sector to families (e.g., unemployment benefits, scholarships, pensions, etc.), as well as net remittances (money received from the rest of the world minus money sent abroad).