First of all, lets start with the five objectives of macroeconomics:
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Economic Growth- This is the overall increase in goods and services in an economy, also known as national output.
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External Equilibrium- Balanced Payments, which are imports and exports.
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Full Employment- This is when there is no unemployment rate, and all labour is in use.
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Economic Development- The increase in standard of living.
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Price Stability- When the average price level neither rises or lowers.
Ways To Calculate GDP
There are three ways to find the GDP of a nation, and in theory, they should all be equal.
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First of all there is the expenditure method. This calculates the GDP by making 4 groups of expenditure:
-Consumers (C), Government (G), Investors (I), and Foreigners (X). All groups consume imports (M), thus it is deducted from the 4 groups. These 4 groups are used to find the GDP by a simple formula.
GDP= C + G + I + ( X – M )
For example, a way to increase the GDP is to increase government spending.
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Secondly, there is the income method. This is based on the income generated in the factors of production, again there are 4 types:
-Land, which is generated in rent
-Labour, which is generated in wages
-Capital, which is generated in interest
-Entrepreneurship, which is generated in profit of the entrepreneur.
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Thirdly, there is an output method. This is found by figuring out by adding up all the final outputs, by broad industrial groupings.
Gross Vs. Net National Product
Gross National Product (GNP) and the Net National product (NNP) are both the measure of all the final goods and services produced by a nation within a year by the firms and citizens of that country. The difference between them is that the GNP is the total product in contrast to the NNP, which is all the products minus depreciation. Thus making the NNP more accurate.
Gross National vs. Gross Domestic Product
Gross National Product (GNP) and the Gross Domestic Product (GDP) are both final goods and services produced in one year. The difference is that GDP is within geographical boundaries of a country, and GNP is generated by the citizens of a country.
Circular Flow of Income
The circular flow of income (Y) is the main model for macroeconomics. There are a lot of complex models, and simple models. There are leakages, which flow out of the circular flow, and also injections, which flow back in. These show the flow of money between households, factors of production, goods & services, and firms/businesses.
Injections:
Savings
Taxes
Imports
Leakages:
Firms
Government Spending
Exports
HOUSEHOLDS
GOODS&SERVICES
FIRMS/BUSINESSES
FACTORS OF PRODUCTION
-Capital
-Land
-Labour
-Entrepreneurship
National Income: Factor Costs vs. Market Prices
The factor costs are the costs of the factors of production, whilst the market prices are the best measure of the value of most economic goods, which is also affected by the government whom include subsidies and taxes. For example if there was an alcoholic beverage and milk, which had the same factor cost, the alcoholic beverage would be taxed, and the milk would be subsidised, thus making a market price. But in the end, the more accurate result will be the factor cost, because in every country taxes and subsidies differ.
Nominal Vs. Real National Income
The difference between Nominal National Income (NNI) and Real National Income (RNI) is that the NNI shows the National Income at current prices, whilst RNI shows the National Income which is adjusted, and subtracts the inflation. The RNI is more accurate as it corrects inflation.
Total Vs. Per Capita Income
The difference between Total Income (TI) and Per Capita Income (PCI) is that TI is the total income of the country, and PCI it shows on average the income of a citizen of a country. PCI is more accurate, as it shows the wealth of a nation.
