List of macroeconomic indicators

Measuring the Macroeconomy

➀ Write down definition and main features of keyword. A bit more research about data evolution
required for the word with * this mark (See the description of this assignment)

➁ Read and analyse the news items and newspaper articles posted on Toledo. Make sure you can
explain the items discussed in the articles.

GDP = Gross Domestic Product 国内総生産

= The total value of all goods & services produced within a country in a given period, usually
monthly, quarterly, and yearly.

GDP includes all consumer spending, government spending, investments, and net exports.

GDP= C + I + G + NX
C: Consumption, I: Investment, G: Government spending, NX: Net exports (純輸出 = Exports −
Imports)

BUT,
Not all productive activity is included in GDP. For example, unpaid work (such as housework,
volunteering, childcare) are not included because they are difficult to measure and value accurately.

Nominal GDP* 名目 GDP

Definition:
The total monetary value of all goods & services produced in a country over a specific period,
calculated without adjustment for price changes caused by inflation or deflation.

Main features:

・uses the current prices of each period (その時の物価が反映されるということ)

・Since nominal GDP doesn’t take price changes into account, it only shows the growth figure of the
total value of goods & services, which is not useful when comparing GDP from different periods.

・Nominal GDP doesn’t reflect a real change in economic activity.

Nominal GDP* (Last Year):

• Eurostat Database
• Unit of Measure: Current prices, Euro per capita
Belgium: 43,680 (p) (Year 2021)
Euro Area EA11-9999: 35,850 (Year 2021)
Euro Area – 19 countries (from 2015): 35,850 (Year 2021)
Real GDP 実質 GDP = Nominal GDP ÷ GDP deflator

Definition:
A measure that reflects the value of all goods & services produced in a country over a given period,
adjusted to price changes caused by inflation or deflation.

Main features:

・uses the same set of prices over time. (時代による物価の違いは取り除かれる)

・tells us how much GDP has increased or decreased if the prices of goods & services hadn’t
changed → makes comparing GDP over time more meaningful because it shows a real change in
economic activity.

・calculated by dividing nominal GDP over a GDP deflator.

・To determine “real” GDP, its nominal value must be adjusted to take into account price changes to
allow us to see whether the value of output has gone up because more is being produced, or simply
because prices have increased.

GNP = Gross National Product 国民総生産(政経資料集 p.214)

Definition:
The total value of all the final products & services produced by a country’s residents over a specific
period.

Main features:

・A country’s residents include not only domestic residents but also residents living in foreign
countries. 海外に住む国民や海外に拠点を置く企業の所得も GNP に含まれる

・GNP = GDP + Income earned by residents abroad ➖ Income earned by foreign residents

= (C + I + G + NX) + Net income ←海外からの純所得

・GNP measures economic output & income based on nationality, unlike GDP which is based on
location.

・e.g. TOYOTA’s profit count for US GDP but not for US GNP. It’s included for Japanese GNP because
TOYOTA is a Japanese company.
Circular flow of income and expenditure

Definition:

The process whereby the income and expenditure of an economy flow in a circular manner
continuously through time.

The circular flow model describes how money and economic resources flow in cycles between
different sectors in an economic system.

The model consists of households, firms, government, and the foreign sector.

Main features:

・demonstrates how money flows from firms to households as wages and flows back to firms as
payment of products, how money flows as savings, investment, taxation, government spending,
imports, and exports.

-> consumption expenditure is the expenditure by households on consumption goods and services
(buying physical goods life coffee, or services like the hairdresser)
-> investment is the purchase of new capital goods (tools, instruments, machines, buildings, and
other constructions, buying a home) and additions to inventories
-> government expenditure on goods and services is the expenditure by all levels of government on
goods and services (roads, schools, pensions, childcare, health care, etc.)

・Households と Firms 間だけの Circular flow だと Microeconomics になるけど、上図のように

foreign sector を含む Circular flow だと Macroeconomics
Real GDP growth**

Definition:

Real GDP growth indicates economic growth in a country from one period to another, adjusted for
inflation and deflation. In other words, it reveals changes in the value of all goods & services
produced in a country, while accounting for price fluctuations.

Main features:

・The real GDP growth rate removes inflation or deflation ( price fluctuations) in its measurement of
economic growth, unlike the nominal GDP growth rate.

Healthy = GDP expands

Unhealthy = GDP contracts (two consecutive quarters of negative GDP growth is referred to as a
recession)

**Evolution:

Belgium data (2012-2021): 2012(0,7%) – 2013(0,5%) – 2014(1.6%) – 2015(2%) – 2016(1,3%) –

2017(1,6%) – 2018(1,8%) – 2019(2,1%) – 2020(-5,7%) – 2021(6,3%)

Euro area data (2012-2021): 2012(-0,9%) – 2013(-0,2%) – 2014(1,4%) – 2015(2%) – 2016(1,9%) –

2017(2,6%) – 2018(1,8%) – 2019(1,6%) – 2020(-6,4%) – 2021(5,3%)

USA data (2012-2021): 2012(2,3%) – 2013(1,8%) – 2014(2,3%) – 2015(2,7%) – 2016(1,7%) –

2017(2,3%) – 2018(2,9%) – 2019(2,3%) – 2020(-3,4%) – 2021(5,7%)

Business Cycle

Fluctuations in the economy in terms of output and growth, which is measured by the changes in
real GDP
Expansion – GDP rises, prices rise, low unemployment, investment increased, production increased.

Central bank tightens monetary policies to cool down economy and slow inflation.

Interest rates rise.

Peak – Economy is producing at its maximum, demand exceeds supply, economy begins to overheat.

Recession – demand and spending fall, business profit decline, unemployment rises, consumer’s

confidence drops, investment and prices fall, central bank eases monetary policy to

stimulate economic growth and employment.

Trough – the lowest point in a declining growth rate, requires fiscal and monetary intervention

GDP per capita

Definition:

A country’s GDP divided by its total population.

Main features:

・GDP per capita is a useful measure for comparing the standard of living of different countries, or
for comparing the same country at different points in time.

However,

・it does not take into account income distribution in a country. Even if two different countries have
the same GDP per capita, the proportion of people living in poverty in each country can be totally
different.
GDP based on PPP per capita (international dollars) or GDP per capita based on PPP

Definition:

GDP converted to international dollars using purchasing power parity rates and divided by total
population. GDP based on PPP per capita is used to compare living standards across countries. We
need to convert real GDP into a common currency and common set of prices, which is called
Purchasing Power Parity and is calculated in dollars.

★Purchasing power: the number of goods & services you can buy with a certain amount of money

★PPP (Purchasing Power Parity):

- Tradable goods are sold at the same price everywhere in the world, because if they were cheaper
in India, people would buy there and sell in the US.

- Services such as hair-cutting, massaging, are difficult to trade, this means the price of labour can
differ a lot in different countries. => labour is immobile

- The Balassa-Samuelson effect = the fact that services are a lot cheaper in poor countries, and
average prices are lower, so $1 has more value in India than in US.

★PPP exchange rate: the rate at which the currency of one country would have to be converted into
that of another to buy the same amount of goods and services in each country.
Parity: 均衡、等価

Main features:

・The usual method is to convert the value of GDP of each country into US dollars and then compare
them. Conversion to dollars can be done by using purchasing-power-parity (PPP) exchange rates.

・An international dollar has the same purchasing power over GDP as a U.S. dollar has in the US.

Consumer Confidence Indicator*

Definition:

It measures how optimistic or pessimistic consumers are regarding their expected financial situation.

A survey is made from the national banks on a regular basis, and they ask how people feel about the
economic situation, what they think about their income... it measures a range of consumer
attitudes, including forward expectations of the general economic situation, households' financial
positions, and purchasing decisions

Main features:
Consumer Confidence Indicator is based on the premise that if consumers are optimistic, they will
spend more money and stimulate the economy, but if they are pessimistic then they spend less
money, which could lead to an economic slowdown or recession.

*Consumer confidence indicator:

Belgium: 5.0 (Year 2021-10), 7.5 (Year 2021-11), 7.4 (Year: 2021-12)
Euro Area: 9.4 (Year 2021-10), 9.9 (Year 2021-11), 10.6 (Year 2021-12)

Economic Sentiment Indicator*

Definition:

It represents how people feel about the market or economy. This market-psychology based
indicators attempt to quantify sentiment, in the form of figures or graphically, to predict how
current beliefs and positions may affect future market behaviour.

Main features:

Economic sentiment indicator look at how bullish(強気) and bearish(弱気) market actors are and
what they are thinking or feeling, which may help forecast investors’ future behaviour. When
sentiment readings are unusually high or low, they may begin acting in a contrarian(逆の) way. E.g.
when investors are extremely bearish, that is often a contrary signal that market prices could start
heading higher soon.

*Economic sentiment indicator: evolution over 3 months last year

Belgium: 111.0 (Year 2021-10), 114.0 (Year 2021-11), 110.8 (Year: 2021-12)

Euro Area: 117.8 (Year 2021-10), 115.7 (Year 2021-11), 114.3 (Year: 2021-12)

Shortcomings and limitations of GDP shortcoming: 短所

・GDP does not capture welfare or human well-being. This is a problem because while there is a
growing inequality and poverty in society, you can also have increasing GDP.
・GDP tells you nothing about sustainability.

E.g.,
- Even when GDP is increasing, there would be an inequality if the GDP is not equally distributed.

- Or Increased output may come at the cost of environmental damage.

- US spends more on health care than any other country and their health outcome is much lower
than many developing countries, however the money they spend on health care shows up as a
contribution to GDP (if they got more efficient, their GDP could go down)
Human Development Index (HDI), ranking Top 3 and Belgium

It's about fighting poverty and human freedom

HDI is a summary measure of average achievement in key dimensions of human development: life
expectancy, education, and per capita income.

- Life expectancy index: Long and healthy life = life expectancy at birth
- Education index: Knowledge = expected years of schooling
- GNI index: Decent standard of living = GNI per capita (Gross National Income 国民総所得)
(GNI index = shows income inequality or wealth inequality among residents)

Top3 (2021)

1. Switzerland – 96,2

2. Norway – 96,1

3. Iceland – 95,9

13. Belgium – 93,7

Sustainable Development Goals (SDGs)

= Goals formed by the UN to define the world we want

Q1. How did the SDGs originate? By whom were they drawn up? How many Member
States are involved?

SDGs were developed by the United Nations.

• First originated in 1992, at Earth Summit in Brazil to build a global partnership
• Millennium Development Goals was built in September 2000.
• In June 2012, the Member States at United Nations Conference developed the SDGs
based on the MDGs
• After the negotiation, SDGs were drawn up at the UN Sustainable Development
Summit in September 2015.

193 UN members are involved.

Q2. What are the objectives of SDGs? How many objectives have been set?

17 Objectives:

1. No poverty
2. Zero hunger
3. Good health and well being
4. Quality education
5. Gender equality
6. Clean water and sanitation
7. Affordable and clean energy
8. Decent work and economic growth
9. Industry, innovation and infrastructure
10. Reduced inequalities
11. Sustainable cities and communities
12. Responsible consumption
13. Climate action
14. Life below water
15. Life on land
16. Peace, justice and strong institutions
17. Partnership for the goals

Q3. By when should we achieve them? What is the progress? Are the targets binding?
What if a target is not achieved by a country? Binding: 法的拘束力を持つこと

By 2030.

According to the report for 2022, the Covid-19 pandemic has taken a toll on the progress of SDGs,
cascading problems such as crises, conflicts, which also have a bad influence on our health,
education, peace & security. The vulnerable are suffering more due to these problems.

No, SDGs are not legally binding. It’s a non-binding target(努力目標).

Even if a target is not achieved by a country, there is no penalty. But countries are expected to
establish a national framework for 17 goals and to follow-up and review the progress.

Q4. Can you also contribute to the achievement of the SDGs? If so, name a few concrete
actions you can take.

There are many actions I can take, I can go to school, shopping, friend’s house by bicycle
instead of taking a bus or other transportation. I can reduce garbage by using reusable
products such as steel straws, beeswax wraps.