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Thomas More - Macro Economics - Comprehensive Summary

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Macro Economics

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Thomas More Hogeschool (tmhs)

School: Thomas More Course: Macro Economics Lecturer: Buyse Tim Content: - General Framework - Basic Principles of Contract Law - Major Contracts - How to solve any given scenario? - Example Exam Question Solves Copyright warning: Reproduction and distribution of this document witho...

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Rania El Ghalbzouri 1
IBT 2B1

,Gross Domestic Product
• Expenditure approach: 𝐺𝐷𝑃 = 𝐶 + 𝐺 + 𝐼 + 𝑋 − 𝑍 with (𝑋 − 𝑍) = trade balance
• Income approach: 𝐺𝐷𝑃 = 𝑌𝐿 + 𝑌𝑂𝑆 + 𝑇𝑖𝑛𝑑
• Production approach: 𝐺𝐷𝑃 = ∑ i𝑉𝐴𝑖

Gross National Income
𝐺𝑁𝐼 = 𝐺𝐷𝑃 + (𝐹𝐼𝑖𝑛 − 𝐹𝐼𝑜𝑢𝑡) = 𝐺𝐷𝑃 + 𝑁𝐹𝐼

Net National Income
𝑁𝑁𝐼 = 𝐺𝑁𝐼 − 𝐷𝐸𝑃 = 𝐺𝐷𝑃 + 𝑁𝐹𝐼 – 𝐷𝐸𝑃

Net National Available Income
𝑁𝑁𝐴𝐼 = 𝑁𝑁𝐼 + (𝑇𝑅𝐴𝑖𝑛 − 𝑇𝑅𝐴𝑜𝑢𝑡)
𝑁𝑁𝐴𝐼 = 𝑁𝑁𝐼 + 𝑁𝑇𝑅𝐴
𝑁𝑁𝐴𝐼 = 𝐺𝑁𝐼 − 𝐷𝐸𝑃 + 𝑁𝑇𝑅𝐴
𝑁𝑁𝐴𝐼 = 𝐺𝐷𝑃 + 𝑁𝐹𝐼 − 𝐷𝐸𝑃 + 𝑁𝑇𝑅𝐴
𝑁𝑁𝐴𝐼 = 𝐶 + 𝐺 + 𝐼 + 𝑋 − 𝑍 + 𝑁𝐹𝐼 − 𝐷𝐸𝑃 + 𝑁𝑇𝑅𝐴
𝑁𝑁𝐴𝐼 = (𝐶 + 𝐺 + 𝐼𝑛𝑒𝑡) + (𝑋 − 𝑍 + 𝑁𝐹𝐼 + 𝑁𝑇𝑅𝐴)
𝑁𝑁𝐴𝐼 = net domestic demand + net income from abroad (CA)

Current account
𝐶𝐴 = 𝑋 − 𝑍 + 𝑁𝐹𝐼 − 𝑁𝑇𝑅𝐴
𝐶𝐴 = 𝑁𝑁𝐴𝐼 − (𝐶 + 𝐺 + 𝐼𝑛𝑒𝑡)

A current account surplus thus implies that the country’s 𝑁𝑁𝐴𝐼 surpasses its net
domestic demand. The country has more income available than what is domestically
spent, because net income flows in from abroad (either because the country exports
more than it imports, and/or 𝑛𝑓𝑖 and/or 𝑛𝑡𝑟𝑎 are positive).

Moreover, in case of a CA-surplus, the part of 𝑁𝑁𝐴𝐼 that is not domestically spent, can
be invested abroad. Foreign countries dissave (𝑆𝑓 is negative, because 𝐶𝐴 is positive).
Therefore, a CA-surplus is equivalent to accumulating debt claims (i.e. assets) with
respect to foreign countries.

Note that the opposite holds in case of a CA-deficit: the country has domestic
demand that is higher than its available income. A CA-deficit implies a country
accumulates debt vis-à-vis foreign countries.

Net national savings
𝑆 = 𝑁𝑁𝐴𝐼 − 𝐶 − 𝐺
𝑆 = 𝑆𝑝𝑢𝑏 + 𝑆𝑝𝑟𝑖 = (𝑇 − 𝐺) + (𝑁𝑁𝐴𝐼 − 𝑇 − 𝐶)
hence
𝐶𝐴 + 𝐼𝑛𝑒𝑡 = 𝑆 = 𝑆𝑝𝑢𝑏 + 𝑆𝑝𝑟𝑖
savings finance investments (domestic and abroad)
Foreign savings
𝑆𝑓 = −𝐶𝐴

Rania El Ghalbzouri 2
IBT 2B1

,Microeconomics vs. Macroeconomics
Economics, the study of how societies allocate resources, is divided into two
fundamental branches: microeconomics and macroeconomics. These branches
offer distinct perspectives on economic phenomena, serving as the foundation for
understanding the complexities of economic systems.

Microeconomics is a branch of economics focused on the study of individual markets
and firms. At its core, microeconomics examines the behavior of individual economic
agents. When analyzing microeconomics, we consider the interaction of supply and
demand in these markets, which involves adding up the quantities demanded and
supplied by individuals or firms. This type of analysis is often referred to as partial market
analysis.

Macroeconomics, on the other hand, is a branch of economics that takes a broader
perspective by examining the entire economy as a whole. In macroeconomics, we
focus on aggregated levels of economic phenomena such as total output, overall
employment and unemployment rates, and the general price level across the entire
economy.

One important concept in macroeconomics is the fallacy of composition, which
asserts that the whole can be greater than the sum of its individual parts.
Macroeconomists study the interconnections between the market for final goods and
services and the production factors that contribute to them. Additionally,
macroeconomics delves into the use of money in the economy, the challenges of
coordinating economic activities, and other complex issues related to the functioning
of the economy as a whole.

Rania El Ghalbzouri 3
IBT 2B1

, National accounts – An Overview
National accounts, often referred to as national income accounts or macroeconomic
accounts, are a comprehensive system of economic measurement that provides a
detailed and organized record of a country's economic performance and
transactions over a specific period. These accounts are essential tools for economists,
policymakers, and analysts to assess and understand a nation's economic activity and
its overall well-being.

National accounts typically encompass a wide range of economic data and
statistics, including:

Gross Domestic Product (GDP)
Gross Domestic Product, often abbreviated as GDP, is a fundamental concept in
economics used to measure the economic performance of a country. It provides an
indication of the total economic activity within a nation. These methods must all yield
the same result, highlighting the consistency and accuracy of GDP measurement.

1. Production Approach
This approach to calculating GDP focuses on the total value of goods and services
produced within a country's borders during a specific time period. It takes into
account the value-added at each stage of production.

2. Income Approach
The income approach calculates GDP by summing up all the incomes earned by
individuals and businesses within a country during a specific period. This includes
wages, rents, profits, and taxes, among others.

3. Expenditure Approach
The expenditure approach, as the name suggests, determines GDP by adding up all
the expenditures made by households, businesses, government, and net exports
(exports minus imports). It reflects how money is spent within the economy.

Rania El Ghalbzouri 4
IBT 2B1

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