Macroeconomics Fundamentals: Objectives, Policy Tools, and GDP

Understanding Macroeconomics: Objectives, Instruments, and GDP

Macroeconomics deals with the study of phenomena that affect the entire economy, among which are inflation, unemployment, and macroeconomic growth. To analyze the performance of the economy, macroeconomics focuses on the study of Gross Domestic Product (GDP) or the general price level to make it easy to set concrete targets and design macroeconomic policy. This integrated set of measures, designed by the government to influence the progress of the economy as a whole, aims for objectives such as the growth of production, employment, and price stability.

Key Objectives of Macroeconomics

• Production Growth

  Having an abundant amount of goods and services is something all countries desire. The broadest measure of total output is the Gross Domestic Product (GDP), which measures the market value of all final goods and services a country produces in a year.

• Employment

  When individuals finish their training period, they want to find good jobs with high wages and good conditions.

• Price Level Stability

  Achieving stable, low inflation is a key objective, as strong growth in prices distorts the economic decisions of firms and individuals.

Instruments of Macroeconomic Policy

An instrument of economic policy is a controlled variable that policymakers can influence to achieve one or more goals. Among these instruments are:

• Monetary Policy

  Includes central bank measures aimed at controlling the amount of money and credit in the economy.

• Fiscal Policy

  Includes government decisions on the level of public spending and taxes.

Gross Domestic Product (GDP) Explained

The Gross Domestic Product (GDP) is the total monetary value of final goods and services produced for the market within the borders of a country for one year. We analyze GDP through each of the components that make it up:

• Total Monetary Value

  The number of units of currency by which all products are added into a single figure.

• Of Final Goods and Services

  When measuring GDP, it does not include all goods and services produced in the country, but only those sold to final users.

• Produced

  The measurement of GDP includes only goods and services produced in the year in question. It also does not include purchases of second-hand goods.

• For the Market (Sold)

  Not all goods and services produced are included, but only those that occur for the market (i.e., sold).

• For One Year

  GDP measures a process that develops over a period of time. Its value will depend on the time period used for measurement, and by tradition, this is one year.

• Within the Borders of the Country

  For example, Spanish GDP measures production within the borders of Spain, independent of whether it was produced by Spanish entities or not.