Economic Policy & Macroeconomic Indicators

Economic Policy

• Encompasses budgetary and monetary policies.
• Monetary policy involves central bank actions to set exchange rates and manage the money supply based on economic conditions.
• Budgetary policy is the significant act of government through the vote on the finance law.
• The cyclical evolution of economic aggregates depends on these two instruments.
• Macro aggregates are defined and measured within national accounting frameworks, harmonized across countries since the aftermath of World War II.

Macroeconomic Indicators

• GDP is used to measure the wealth of a country.

GDP Approaches

• GDP measures wealth creation by resident institutional units, which are entities with decision-making autonomy capable of buying and selling assets.

• The unit's economic center of interest must be within the national territory.

• Residency is determined by where goods are produced, not by the origin or nationality of the entity.

• Institutional units are grouped into five sectors:

  • Non-financial corporations: traditional commercial sector entities.
  • Financial corporations: entities that collect savings from other sectors, authorize loans, and invest savings in financial markets.
  • Public Administrations (APU): the State and its central administration, local authorities, and mandatory social security associations.
  • Households: individuals living in the same dwelling.
  • Non-profit institutions: associations.
  • The rest of the world: non-resident entities.

• These institutional units have primary activities, categorized using an international nomenclature derived from the UN System of National Accounts, classifying industries internationally.

• GDP measures the creation of tangible and intangible wealth within a national territory, with the service sector accounting for 80% of GDP.

• Economists aim to complement GDP with new indicators to guide investment towards low-carbon sectors.

• GDP can be calculated using three approaches:

  • Production approach: the sum of gross value added (VA) of resident institutional units + taxes on production and imports - subsidies on products. VA = Revenues - Intermediate Consumption
  • Intermediate inputs are components purchased and used to produce goods, which are subtracted to avoid double-counting wealth.
  • Demand approach: inspired by Keynesian economics, GDP equals the sum of final uses of goods/services by resident institutional units.
  • Global demand includes investment as well as consumption.
  • The current account balance is a key part of the balance of payments, with a sub-balance including services, known as the trade balance (industrials).
  • Gross Fixed Capital Formation (GFCF) is distinguished from savings, involving sectors investing in fixed capital formation.

• The current account balance involves exchanges of goods and services, with the trade balance measuring the industry's share, often in deficit.

• The balance of service exchanges reflects invisibles, with a surplus in France.

• Household consumption is the largest component of global demand, nearly 2,000 billion, while GFCF is less at 651.8 billion.

• Recent GDP growth rates include a boost to 6.9% in 2021 due to Keynesian demand stimulation, followed by declines to 2.6% in 2022 and projected rates of 0.9% in 2023 and 1.1% in 2024.

• Potential economic growth rate is the hypothetical rate if all production factors were fully utilized.

• It's calculated from the growth rate of the active population and their productivity.

• The active population grows at 0.35%, with labor productivity increasing by 4-5% annually during the "thirty glorious years" (post WWII), now at 1%, primarily due to tertiary sector expansion.

• Productivity in services grows slower than in industry, especially in personal services.

• Industrial relocation for lower production costs has industrialized the economy. Industrial employment is now 12%, compared to 20% in Germany, and 1.35% if economy uses the factors of production

• Approach by distribution of income: wages + Gross Operating Surplus (GOS) + (production and import taxes) – subsidies, which compensates the production factors.

• It allows salary calculation against the profits in the VA or the division of VA.

• The key indicator is profit margin rate, which is the part of the profit in the VA or GOS/VA.

• Inverse margin rate is division of salaried in VA.

• THe margin rate was at 30% during gloried times, so the salary division was 70%.

• The salaries were evolving at the same rate as productivity and the inflation at the time.

• There has not been any damage rate to the margin rate during those times.

• At the end of the 30 glorified years, the business transferred the increase of the energy price to production price.

• Workers could demand salary raise higher than the inflation and productivity rates which damage the margin profit.

• The new rebound is the price-salary loop.

• Margin rate decreases at 25% and salary rate at 75%.

• As a result of the opposite the business sector governance of the economy implements polices trying to fix margins rates.

• The margin rate has stabilized at 32-33% now.

• The net profit division paid in dividends was at 35% in the 1980s.

• It is 85% today, causing less self financing.

• It enables value creation for the shareholders by maximazing dividens.

National Net Revenue

• Net National Income (NNI) accounts for income flows between resident and non-resident institutional units, which is not counted in GDP.
• Net National Disposable Income (NNDI) includes transfers, deducts savings to highlight consumption.

Balance of Payments

• Includes the current account, capital account (non-financial capital exchanges), and financial account (capital exchanges).
• The current account comprises the trade balance and invisibles.
• The trade balance, reflecting goods exchanges, showed a deficit of 137.3 billion in 2022, indicating the competitiveness of the industry since 2001.
• The governance modification happened in companies since the capital of the company is made up of institutional investments where the returns of the stock market is a key part.
• The stock holders force restructurings, off shoring, ending plant sites.
• These phenoms reduce French industry.
• Also, the Euro start in 2001 and the national money changed due to the deficit.
• If the banks reduces the money value it allows adjustments. The imported products become expensive and allow balance of the commercial rates.
• The devaluate re-adjusts commererce.
• There is no solution with the euro but a public policy instead.
• Austerity policies reduce the worker salaries to be competitive.
• The balance of services recorded a surplus of 52 billion in 2022, countering part of the trade deficit with industries like aeronautics, LVMH, agri-food, and pharmaceuticals.

Capital flows

• The financial account includes Foreign Direct Investment (FDI) and portfolio investments.
• FDI involves investments aimed at controlling the capital of a company, acquiring over 10%.
• Portfolio investments are investments done to give control of over 10% of enterprise revenue.
• French investments abroad total 111.7 billion, while foreign investments in France are 100 billion, ranking France as the second-largest FDI recipient, with portfolio investments at 119 billion in 2022.
• The overall economy experiences low growth, deindustrialization, and specialization in services.

Keyenes

• Was the son of an economist and Major of Cambridge.
• Supported a project helping save companies and end the collectivist menace.
• Sais that if the state doesn't interfere the market could self regulate itself.
• Neo classical theory is a model representing a general economy of entire working employment.
• Mass lay offs is unrepairable and the mechanism is unfixable.
• That doesn't explaing mass leave.
• Good policy depends on the conditions so one should always be able to try to reboot the situation.
• So the Keynesians don't shy away from using publics funding when near the end of the cycle.

Open economy and free play

• Y(production)=Consumption of goods/services
• Y(production)=Investment
• The investment is dependant on saving. if there are no savers there is no production cost. Plus their saver are strong (neo class reasoning). The rate is low when all the money is spent with a good ratio.
• They can not purchase more short term since it can not be paid.
• Financial Resources can not finance investment.

Mobile Factor L and Labor Market

• Labor demand decrease by real salary.
• Salary decrease causes income. This is volume effect.
• It's said any salary decreases is good for employment in neo classic views.
• Profit maximation says that productivity marginal decreases.
• Keyenes says that these production are pertinent and that those workers that accept a low salary are not guarantied to be hired.
• Salaries are flexible during great depression, or those that are unemployed. so mass unemployement happens again and again.
• Neo classic believes salary increase is good but workers won't work under certains pay grade thresholds.
• The excess temps that happens in theory, it is supposed that salaries decrease and solve these problems.
• It would bring a new balance to employment.

Market Theory

• With refuse to low salary compared to those in reserve Neo classic believes its a voluntarily chô
• Situation that Keyenes called involuntarily chô
• This case is that Neo classic does not involve all parameters. The co is confronted to effective demand issue.
• There are animals spirits.
• Depends on how you will invest your funds.
• I creates S by workers pay and consume more. The stimulation demand allows an increase of salaries and is non full employment situ.