Key Economic Indicators, Banking, and Accounting Basics

Key Economic Indicators Explained

Gross Domestic Product (GDP)

GDP represents the market value of all officially recognized final goods and services produced within a country during a specific period.

GDP Per Capita

Calculated as GDP divided by the population (GDP/population), it serves as one indicator of a country's standard of living.

GDP as a Predictive Tool

GDP helps predict economic trends as it indicates a country's overall wealth.

Limitations of GDP

• Not all economic activities are included (e.g., informal market, illegal activities, housekeeping).
• A high GDP does not always equate to high societal welfare. Other indicators, like the Human Development Index (HDI), measure general social well-being.

Understanding the Labor Market

Unemployment

Unemployment occurs when individuals in the labor force are actively seeking employment but cannot find it.

Unemployment Rate

Calculated as: Unemployed People / Active Population.

Activity Rate

Indicates the proportion of the adult population that is active (either working or looking for work). Calculated as: Labor Force / Adult Population.

Consumer Price Index (CPI) and Inflation

Consumer Price Index (CPI)

The CPI is based on a basket of consumption goods and services, representative of a typical household. This basket varies between countries.

CPI Applications

• Measures the level of inflation.
• Reveals purchasing power.
• Used for the Harmonized Index of Consumer Prices (HICP).

Inflation Rate

The inflation rate signifies the rise in the general price level of goods and services in an economy over time. When general prices rise, each unit of currency buys fewer goods and services.

Inflation affects the stock exchange.

Core Inflation

Core inflation excludes volatile items like oil prices and fresh produce, as their production levels are not guaranteed.

Basic Banking Concepts: Credit Types

Types of Credits

• Short-term: Includes overdrafts (the possibility to borrow money by spending more than you have in your bank account) and bridging loans.
• Long-term: Includes loans and mortgages.

Introduction to Accounting Principles

Financial Statements

Accounting involves collecting, organizing, and interpreting financial data, presented in financial statements.

Budgeting

A company prepares a budget to determine how much it can spend or invest.

Factors Influencing Spending

A company's spending capacity depends on factors such as revenue from turnover and money paid out as costs.

Profit Utilization

If profits increase, the company might spend more, but earnings are often used to pay debts first.

The Accounting Equation (ALOE)

ALOE stands for: Assets = Liabilities + Owner's Equity.

• Assets: Anything owned by a business (e.g., intangibles, total receivables, prepaid expenses, tangible assets, goodwill).
• Liabilities: All the money that the company will have to pay to someone in the future (e.g., accounts payable, accrued expenses).
• Owner's Equity: The money belonging to the company's owners (also known as net worth).