Microeconomics and Macroeconomics: Key Economic Indicators

Microeconomics and Macroeconomics

Microeconomics: Studies the markets and their individual components.

Macroeconomics: Studies the overall operation of the entire market economy of a country or region.

Key Macroeconomic Indicators

Macroeconomic figures are the indicators that measure what is produced in a country, the total amount of benefits accruing to firms, etc. The main ones are:

• National Accounting: Uses income and production methods.
• Inflation Measurement: The Consumer Price Index (CPI) is used as an inflation indicator. Formula: (CPI Year 2 / CPI Year 1) * 100
• Employment and Unemployment Indicators: Other indicators include confidence in economic agents, interest rates, or equity.

Gross Domestic Product (GDP) and Gross National Product (GNP)

GDP: Measures the total value of final goods and services produced within a country or region during a specific period, regardless of the nationality of the ownership of the businesses, focusing on the geographic location of production.

GNP: Measures the total value of final goods and services produced by companies based on a nationality criterion. The production methods consider the nationality of the company and not where the production physically occurs.

Gross Domestic Product + Gross National Income = National Income = National Income Available - Taxes + Transfers

Measuring Income Inequality

The distribution of income inequality is measured using:

• Lorenz Curve: Relates the cumulative percentage of the population to the cumulative percentage of income. It shows the deviation from a perfectly equal income distribution.
• Gini Index: Calculated as the area between the Lorenz curve and the line of perfect equality, divided by the total area under the line of perfect equality.

Inflation and the Consumer Price Index (CPI)

Inflation is the sustained and widespread increase in the prices of goods and services in an economy. It is measured using the Consumer Price Index (CPI), which includes a weighted average of the prices of goods and services representative of family consumption. It does not include investment assets.

These data provide valuable information about the economic situation of a country for several reasons:

1. Inflation data are used as a reference to account for many economic variables. Wage growth is usually associated with inflation.
2. Monetary authorities use inflation data to assess monetary policy.
3. Excessive inflation can be dangerous.

Types of Inflation

• Moderate Inflation: Prices rise slowly, below 10% annually. The value of money is hardly affected. This is mostly found in developed countries.
• Galloping Inflation: The annual inflation rate is in the double or triple digits, between 10% and 1000%.
• Hyperinflation: Rates exceed 1000% per year. Control over prices is lost, and money has little value.
• Stagflation: A combination of inflation and economic recession. Sustained inflation coexists with high levels of unemployment.
• Deflation: A general decrease in the inflation level, produced by a lack of demand. This triggers a vicious cycle where businesses lower prices to cover costs.

Interest Rates

Interest rates: Represent the cost of financing a loan for borrowers and the return offered to savers, reflecting the balance between the supply of savings and the demand for debt.