National Accounts
Gross Domestic Product (GDP) is the total monetary or market value/prices of all the finished goods and services (final G&S) produced within a country's borders in a specific time period.
3 valuation criteria:
• Basic Prices: The basic price of a product represents the value at which it leaves the economic unit that produces it, including taxes and subsidies related to production. It is equivalent to the sum of factor remuneration and other net production taxes (taxes minus subsidies). If these taxes/subsidies were excluded, the valuation would revert to the outdated concept of "factor cost", which is no longer used in current accounting standards.
• Producer prices: values at basic prices plus the taxes (net of subsidies) on products and imports, with the exception of VAT. It corresponds to the old ex-factory price valuation criterion.
• Acquisition prices / market prices: prices paid by consumers.
GDP – Three approaches:
- Sum of Spending (C+I+X-M)
- Factor Incomes (W+R)
- Output (Agr+Ind+Serv)
Source INE and own ellaborations (updated on 2025
GNP = GDP + NPI
NNP = GNP – FCC
GNP = GNI
NNP = NNI
NNDI = NNP + NT
GDP = GNP - NPI = NNP + FCC – NPI = NNI + FCC – NPI = NNDI - NT + FCC – NPI
NNDI = GDP + NT - FCC + NPI
GNDI = GDP + NT + NPI
RNBD Disposable Net Domestic Rents – Final consumption = Gross Domestic Savings
GNDI = GNS + FCE NNPMP - Taxes + subsides = NNPfc = National income
GDPMP – CCF= NDPMP
GNPMP – CCF = NNPMP A developing country: GDP usually greater than GNP
System of National Accounts (SNA)
Transforming output meassures
GDP per cápita = GDP / Population
Productivity = GDP / Workers
Gross national product (GNP) is an estimate of total value of all the final products and services turned out in a given period by the means of production owned by a country's residents. --
Growth meassures
Growth Rate Formula
The growth rate of \(V_t\) is given by:
Compound Growth Rate Formula
The \(Compound\ Growth\ Rate\ (CGR)\) is calculated using the formula:
The Rule of 70: Doubling Time
The \(Rule\ of\ 70\) estimates the number of years required for a quantity to double, given a constant growth rate:
Example Calculation
If an economy grows at 5% per year, the time it takes to double is:
Index Number Formula
The \(Index\ Number\) is calculated using the formula:
Deflator Formula
The Deflator is calculated using the formula:
Explanation
- \(Nominal\ Value\) = measured at current prices.
- \(Real\ Value\) = measured at constant prices.
Exchange Rate Formula
The \(Exchange\ Rate\) represents the amount of national currency required to obtain \(one\ unit\) of a foreign currency:
Explanation (direct)
- \(Units\ of\ National\ Currency\) = the amount of local currency needed.
- \(One\ Unit\ of\ Foreign\ Currency\) = the reference foreign currency (e.g., 1 USD, 1 EUR).
Indirect (Inverse): Indicates how much foreign currency you receive for one unit of your local currency.
Example Calculation
If 1 USD is equal to 20 Mexican Pesos (MXN), then:
This means 1 USD is worth 20 MXN.
Major exchange rate regimes
- Floating (Flexible) Exchange Rate: The exchange rate is determined solely by the market forces of supply and demand, allowing it to fluctuate freely in the foreign exchange market.
- Managed Float (Dirty Float) System: A hybrid system where the currency generally floats based on market conditions, but the central bank intervenes occasionally to stabilize, prevent excessive volatility, or correct misalignment.
- Crawling Peg: A system where the exchange rate is adjusted periodically in small, predetermined amounts to manage inflation or economic adjustments.
- Fixed (Pegged) Exchange Rate: The government or central bank sets a specific value for their currency, anchoring it to a stable foreign currency (like the USD or Euro), a basket of currencies, or gold.
Nominal and real exchange rates. Efective exchange rates.
Interventions in exchange rate markets.
- Depreciation: A currency loses value relative to a foreign currency. This means more units of the national currency are needed to purchase one unit of the foreign currency.
- Appreciation: A currency gains value relative to a foreign currency. This means fewer units of the national currency are needed to purchase one unit of the foreign currency.
- Devaluation & Revaluation for fixed exchange regimenes
PPP - Purchasing Power PArity
Developing countries use to have “cheaper” noncommercial services. Comparisons with exchange rate tend to underestimate the purchasing power capacity ➡️Purchasing Power Parity – Big Mac Index.
Efective exchange rate (nominal & real): weighted average of the bilateral exchange rates between the home country and its major trading partners.
Effective exchange rates - data | BIS Data Portal
Alternative meassures of economic activity
Limitations of the GDP measure:
1.- Effects on stock variables (e.g. deforestation, petrol stocks...)
2.- Type of production (education vs. military spending or hospitals vs. crime)
3.- Environmental costs Negative externalities (pollution)
4.- Production for the market only: informal economy
5.- Distribution problems
6.- Measurement vs. reality (statistical discrepancies)
Index of Sustainable Economic Welfare / Índice de bienestar económico sostenible
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Better life index https://stats.oecd.org/Index.aspx?DataSetCode=BLI
Inequality
Visualizing global income inequality Visualizing global wealth inequality
Aumented Human Development Index
Glosary Macroeconomic and National Income Accounts Abbreviations:
- COE - Compensation of Employees: Total wages and salaries paid to employees, including social contributions.
- FC / FCE - Final Consumption: Total consumption of goods and services by households, government, and NPISHs.
- FCC - Fixed Capital Consumption (Depreciation):The reduction in value of fixed assets due to wear and tear or obsolescence.
- GCF - Gross Capital Formation: Investment in fixed assets, inventories, and valuables within an economy.
- GDP - Gross Domestic Product: Total market value of all final goods and services produced within a country.
- GMI - Gross Mixed Income: Income from self-employed and unincorporated businesses, combining wages and profits.
- GNDI - Gross National Disposable Income: Total income available to a country, including net transfers from abroad.
- GNP - Gross National Product Total value of goods and services produced by a country’s residents, including income from abroad.
- GNI - Gross National Income: GDP plus net income from foreign sources (NPI).
- GNS - Gross National Savings: Total savings of a nation after consumption expenses, calculated as GNDI minus FCE.
- GOS - Gross Operating Surplus: Profits from production activities before interest, rents, and taxes, without taxes on production.
- GVA - Gross Value Added: GDP minus net taxes (output value minus intermediate consumption).
- IC - Intermediate Consumption:The value of goods and services consumed as inputs in production.
- NNDI - Net National Disposable Income: GNDI minus depreciation (FCC), showing net available income.
- NNI - Net National Income: GNI after deducting depreciation (FCC). Equal to NNP
- NNP - Net National Product: GNP minus depreciation, reflecting net output after accounting for asset wear. Equal to NNI
- NPI - Net Primary Income: Net income from abroad, including wages, profits, interest, and dividends.
- NSI - Net Secondary Income: Transfers such as remittances, aid, and pensions received from abroad.
- NPISHs - Non-Profit Institutions Serving Households: Organizations providing services to households without profit motives (e.g., charities, NGOs).
- NT - Net Transfers (Secondary Income Transfers): Net current transfers received from abroad, including foreign aid and remittances.
- VAT - Value Added Tax: A consumption tax levied on the added value of goods and services at each production stage.
Exercise
Calculate GDP shares, For instance, Spanish data here
Read the content of the last reports of an international organization (IMF, OECD, WTO, WB) on economic activity. Select one chapter and comment the main conclusions.