It is essential to be familiar with the different macroeconomic variables , to know what they are for and how they influence us as citizens.
For this reason, we are going to tell you everything related to macroeconomic and economic variables .
Macroeconomic variables, what are they for?
The purpose of macroeconomic variables is to discover what type of economic activity a country has and, moreover, to predict how that activity will evolve over the coming months. To compile these statistics, certain indicators are considered to understand the country's economic situation, its level of global competitiveness, and its economic trajectory.
After conducting this study, it is possible to determine which companies have the best performance within the country and also to identify which companies are best positioned within that country.
What macroeconomic studies can be used for
Studies of macroeconomic variables can be used to inform the purchase of one or more companies within a country. Macroeconomics is important because it provides the criteria and policy recommendations, both fiscal and monetary.
Macroeconomic variables can be used to determine the stability of prices within a country's free market. A country is considered stable when prices neither rise nor fall at any point.
The political environment and macroeconomic variants
The analyses that are done to understand macroeconomic variables should always be carried out in order to determine any type of political risk on the present or future economy.
When investments are accepted from abroad, this risk is doubled since the government that sells can camouflage the performance or even seize assets of the companies.
What strategies are used
This can be done by adjusting the expected cash inflows from a project. It can also be done by adjusting discount rates to reflect the risk of the country's overall budget.
The proper way to do this is by adjusting cash flows in individual projects that make use of an overall adjustment for the different projects.
What happens when you invest abroad
When foreign investment is accepted , this risk doubles because the selling government can disguise the return or even seize company assets.
This can be done by adjusting the expected cash inflows from a project. It can also be done by adjusting discount rates to reflect the risk of the country's overall budget.
The proper way to do this is by adjusting the cash flows on individual projects that make use of a global adjustment for different projects.
What are the most relevant macroeconomic variables
Next, we will examine in more detail the most important macroeconomic variables :
Gross domestic product
Within macroeconomic variables, one of the first things considered is GDP . This is the value of goods and services produced by businesses in a country. It also includes the number of people employed within the country during a specific period. The economic sectors considered in this case are the primary, secondary, and tertiary sectors.
To obtain a truly accurate macroeconomic variable , all goods produced in a given country must be considered, regardless of whether they have been sold. This total also includes international companies. For example, if we are looking for the variable for Spain, foreign companies will also be taken into account.
The risk premium
The risk premium, or country risk, is the second factor to consider when calculating macroeconomic variables. The risk premium is the extra cost investors pay when buying a country's debt.
This extra cost is required by all investors to buy bonds in any country. Investors are given a superior return when they take risks of buying in countries in order to obtain a good return.
How is this premium calculated?
All countries issue bonds that are traded on secondary markets , where the interest rate is determined by demand. The premium is calculated based on the difference between the 10-year bonds issued by a country within the European Union compared to those issued by Germany.
Inflation
Inflation is one of the most important macroeconomic variables , as it directly indicates the general increase in prices.
Generally, a one-year account is made and this not only includes the goods of a country, but also all services.
What factors occur within inflation
Many factors contribute to inflation . One of the main ones is demand; when a country's demand increases, but the country is not prepared for it, prices rise.
The second factor is supply . When this occurs, it's because the cost for producers begins to increase, leading them to raise prices in order to maintain their profits.
Due to social reasons . This occurs when price increases are anticipated, but collectors begin charging higher prices ahead of time.
Interest rates in macroeconomic variation
It is another factor that is taken into account for macroeconomic variations. Within a country, the most important interest rates are those set by the central bank. The money is loaned by the government to the banks and these banks in turn give it to other banks or to individuals.
When that money is lent, it is based on the interest rates of that bank and that must be returned along with the rest of the money.
The exchange rate
Another important macroeconomic variable is the exchange rate . The exchange rate is always measured between two major currencies, and this is also determined by the European Central Bank. The exchange rate is one of the most important indicators of whether a country's currency is devaluing or appreciating.
Balance of payments
The balance of payments is something that must always be considered when trying to understand macroeconomic variables. It records the financial flows a country experiences over a specific period, usually a year.
Within the balance of payments there are several types for calculating the economic variant :
- Balance of trade. The trade balance is the one that accounts for the exports of the types of goods, as well as the types of income.
- Balance of goods and services. Here the trade balance and the services balance are added. This is where transport services, freight, insurance and tourism services, all kinds of income and technical assistance come in.
- Current account balance. Here the goods and services of a country are added, in addition to the operations that have been carried out by transfers. This balance also includes the repatriations of immigrants who arrive in the country, the international aid that is given to many countries or the donations made to international organizations.
- Basic scale. Here, we have the sum of the current account plus the long-term capitals.
Unemployment as a macroeconomic variant of a country
Unemployment in a country is the number of unemployed that a given country has. The definition of an unemployed person is the person who wants to work but cannot find a job and not all the people in a country who are not working at the time.
To find out the unemployment rate of a country, the percentage of people who are unemployed must be taken over the amount of the active population.
For a person to be said to enter the workforce, they must be over 16 years of age. Within Spain, there are two means by which the unemployment rate can be measured and they are the state employment service or labor force surveys.
Supply and demand indicators in macroeconomic variations
In this case, the supply indicators are those that tell us about the economic offer of a country. Among these indicators are industry supply indicators, construction indicators and service indicators.
Regarding demand indicators, they are consumption indicators, investment demand indicators and finally those related to foreign trade.
Aggregate demand and supply
This model aims to define the current economic situation by analyzing production over a period and existing prices through aggregate supply and demand functions. It is the fundamental tool for studying the various fluctuations in production and prices thanks to a mathematical model that can be represented graphically. This tool helps to understand the consequences of different economic policies and, consequently, to analyze their impact on macroeconomic variables.
The components to carry out this analysis are that of supply and aggregate demand.
- Aggregate demand: It is a representation of the market for goods and services. It is made up of private consumption, private investment, public spending, and in the cases of open economies of net exports (exports minus imports).
- Offer added: It is the total amount of goods and services that are offered at different average prices. So this model is used to analyze inflation, growth, unemployment and, in short, the role that monetary policy plays.
Microeconomic variables: what are they?
These are variables that pertain to individual economic behavior . They can involve businesses, consumers, investors, workers, and their interaction with markets. The elements typically analyzed include goods, prices, markets, and various economic agents.
Depending on which individual agent is being studied, different approaches are applied. For example, when studying consumers, consumer theory is considered. Based on this, their preferences, budgets, perceived utility of products, and types of goods allow us to determine how consumption will occur. Similarly, for firms, there is producer theory, which focuses on production, profit maximization, and cost curves. As for markets, the analysis tends to examine their structure and models of perfect and imperfect competition.