What
is macroeconomics?
Macroeconomics
is generally known as economics decisions which dealing with the performance,
structure, behaviour and decision-making of an economy as a whole, rather than
individual markets. Macroeconomics also known as the studies of the behaviour
in aggregate economy such as GDP, unemployment, national income, rate of
growth, gross domestic product, inflation and price levels.
What is GDP?
GDP is the gross
domestic product and one of the primary indicators used to gauge the health of
a country’s economy. Usually, GDP is described as a comparison to the previous
half or year. For example, if the year-to-year GDP is up 6%, this is thought to
mean that the economy has grown by 6% over the last year.
Is because of:
GDP consists of government
spending, consumer spending, Investment expenditure and net exports hence it
portrays all inclusive picture of an economy because of which it provides an
insight to investors which highlights the trend of the economy by comparing GDP
levels as an index. Not only that, GDP helps the investors to run their
portfolios by giving them with guidance about the state of the economy.
Besides
that, in case of GDP, each elements is given the weight of its relative price.
In market economics it clicks as prices reflect both marginal cost of the
producer and marginal utility for the consumer, people sell at a price that
others are willing to pay. The calculation of GDP gives with the general health
of the economy. A negative GDP growth indicates bad signals for the economy.
Economists analyse GDP to state whether the economy is in recession, depression
or boom.
GDP
can be determined in three ways, all of which should, in principle, give the
same result. They are the product approach, the income approach, and the
expenditure approach.
Here’s an example
of the expenditure approach: GDP = private consumption + gross investment +
government spending + (exports − imports)
GDP = C + I + G + ( X - M )
And here’s an
example of production approach:
Market value of
all final goods and services calculated during 1 year. The production approach
is also called Net Product or Value added method. This method consists of three
stages:
Estimating the
Gross Value of domestic Output out of the many various economic activities decided
the intermediate consumption, i.e., the cost of material, supplies and services
used to produce final goods or services; and finally Deducting intermediate
consumption from Gross Value to obtain the Net Value of Domestic Output.
Net Value Added
= Gross Value of output – Value of Intermediate Consumption.
Value of Output
= Value of the total sales of goods and services + Value of changes in the
inventories.
The sum of Net
Value Added in various economic activities is known as GDP at factor cost.
and that’s how it is J
Written by, Nazim
