Macroeconomics: Chapter 2 - GDP and CPI: Tracking the Macroeconomy (Part 1)

Economic Agents: Understand what economic agents constitute an economy and the types of markets they interact on.
GDP Measurement: Learn what Gross Domestic Product (GDP) is and how it is measured.
GNI Derivation: Explore how Gross National Income (GNI) is derived from GDP.
Nominal vs Real GDP: Distinguish between nominal and real GDP.
Business Cycles: Define what a business cycle is.
Limits of GDP: Discuss the limits of GDP and potential ways to overcome them.
Inflation Causes and Consequences: Examine the causes and consequences of inflation, as well as how it is measured.

Economic Agents: Four types - Government, Households, Firms, Rest of World.
Types of Markets: Three types present - Goods and Services, Factor, and Financial markets.
Monetary Flows: Arrows in the economic circuit diagram show the direction of monetary flows between these agents.

Goods and Services Market: Monetary flows correspond to goods and services purchased.
Factor Markets: Monetary flows correspond to the production services provided by factors of production (labor, capital, land).
Financial Markets: Monetary flows result in the exchange of financial securities.

Real Side: Monetary flows in goods and services and factor markets that relate to the production and sale of goods and services, essential for GDP measurement.
Financial Side: Flows through financial markets concerning the purchase/sale of financial securities.

Total Expenditure:
- GDP = C + I + G + (X - M)
- Where:
- C = Consumer spending
- I = Investment spending
- G = Government purchases of goods and services
- X = Exports
- M = Imports
Total Factor Income:
- GDP = W + F + i
- Where:
- W = Wages
- π = Profits
- i = Interest + Rents

At the macroeconomic level, the identity is: Expenditure = Income = Production
- Reflection of fundamental differences with microeconomics.

GDP: The value at market prices of all final goods and services produced within an economy over a specific time period.
- Final Goods and Services: Includes consumer goods and investment goods.
- Domestic: Accounts for G&S produced in the country, irrespective of the producers' nationality.
- Gross: Includes depreciation of productive capital.
- Gross Investment: I = ext{Net Investment} + ext{Replacement Investment}

National Accounts: Measure GDP using three methods:
1. Production (or Added Value) Method
2. Income Method
3. Expenditure Method
Theoretical Equivalence: All three methods should yield the same result; however, in practice, complexities arise as GDP is a statistical measure.

Formula:
- GDP = ext{Sum of Added Values}
Definition of Added Value: Increase in product value due to the production process.
- Computed by:
- ext{Added Value} = ext{Production Value} - ext{Intermediate Consumptions}
- Importance of Deduction: To avoid double-counting, intermediate consumption must be deducted.

Involves summing all income distributed to factors of production:
- Labour Income: Includes wages, bonuses, self-employment income.
- Capital Income: Includes interest, dividends, rents.

Exclusion of Used Goods Sales: Do not count as they add no new value to the economy—pure asset transfer.
Non-Monetized Domestic Work: Activities like cleaning and lawn mowing are not included in GDP calculations.
Inventories Handling:
- Perishable Goods: Not included in GDP to avoid reflecting wasted resources.
- Building Inventories for Sale: Included as it reflects production effort and investment.

Gross Domestic Income (GDI): Measures GDP via the income method.
- GDI = GDP = ext{sum of all income for production on the territory}
Gross National Income (GNI): Sum of all income received by residents.
- GNI = GDP - ext{income paid to non-residents} + ext{income received from abroad by residents}

E.g., wage received from a job in Switzerland by a resident of France counts as GNI while dividends from a Swiss company to a foreign investor are counted as part of the review of GDP vs. GNI distinctions.

In Switzerland, GDP and GNI values are nearly comparable, analysed in millions of CHF.