Three Approaches to Simple Macro Economics

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Introduction to Macroeconomics – three approaches

After the Great Depression in the 1920s, Simon Kuznets first developed the idea of an instrument, which could - just like a clinical thermometer - measure the economic development within a country, the Gross Domestic Product (GDP). This new approach in modern Macroeconomics, though it cannot measure human happiness, admittedly is the most important indicator of a national economic performance. In order to raise a national GDP, the state’s government has the duty to intervene. John Keynes championed the idea of a contra- cyclical practice. Although this approach has been critiqued, it is used in today’s EU policies regarding the crisis. 1. Gross Domestic Product and the Measure of Happiness

The GDP expresses the total market value of all (newly produced) final goods and services within a given period of time in an economy. This precise definition excludes different uncertainties, as following: Intermediate goods, products, sold but not produced in the exact period of time and foreign national companies and workers. Nowadays, most countries use GDP as the primary tool to measure the volume of production within their borders. It is composed of the total value of personal consumption (C), companies’ investments (I), government’s expenses (G) and the difference between exports and imports (net exports). GDP= C + I + G + NX

As an example, Germany’s 2010 GDP equate to 2,499 billion Euros. Paraphrased, with 20.4% of the overall European Union GDP of 12,279 billion €, Germany was able to achieve the highest GDP within the Union.

2. Gross Domestic Product per Capita
The GDP per capita reveals how many goods a human being can afford in average and is used as the key indicator for rating the health of a nation’s economy. Yet, it cannot provide essential information about any social inclusion and is not able to measure environmental sustainability. Modern data also...
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