Theme: MAIN MACROECONOMIC INDICATORS AND

THEIR CALCULATION.
Plan:
1.1. Key indicators used in analyzing the national economy
1.2. The concept of gross domestic products (GDP) and the fundamental
conditions for its calculation
1.3. Methods of calculating gross domestic products
1.4. Other indicators in the system of national accounts and their
interrelationships
1.5. Nominal and real gross domestic products

1.1. Key indicators used in analyzing the national economy

A number of economic indicators are used to analyze the development of the
country's economy, identify problems in national economic growth, and develop
measures for its further advancement. The government utilizes statistical figures to
monitor the level of development and formulate economic policies. Unlike
indicators used to evaluate the performance of individual firms, these indicators
enable a general assessment of the activities of all entities in the national economy,
allow for macroeconomic analysis, and determine the level of competitiveness of
the country's economy in the global marketplace.
These indicators include:
 Volume and growth rates of indicators such as Gross Domestic Product
(GDP), Net Domestic Product (NDP), Gross National Income (GNI), Net National
Income (NNI), Personal Income (PI), Personal Disposable Income (PDI),
Consumption (C), and Savings; structural composition of the economy;
 Volume, composition, share in GDP, and growth rates of the country's
exports and imports;
 Indicators characterizing the efficiency of resource use (Labor
productivity, Capital productivity);
 State budget deficit, GDP deflator, consumer price index, inflation rates;
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  Unemployment rate and the number of unemployed, employment rate of
the population;
 Volume of consumption of material goods and services by the
population, their savings, minimum wage, and other related indicators.
Indicators such as the state budget deficit and inflation rate are used to assess
the overall macroeconomic situation, while indicators like GDP, GNP, GNI, NNI,
PI, PDI, C, and S are used to analyze the parameters and dynamics of national
production. These indicators are determined as the result of activities of all
economic entities, and the basis for their calculation is the System of National
Accounts (SNA). The SNA, serving as the country's accounting system, allows for
the calculation of macroeconomic indicators based on its standards and enables
cross-country comparisons.
To study the actual state of the country's economy and provide a systematic
assessment, it is necessary to use all the above-mentioned indicators; otherwise, a
one-sided approach may occur.

1.2. The concept of gross domestic products (GDP) and the

fundamental conditions for its calculation
For a long time in macroeconomic statistics and analysis, indicators of gross
national product and gross domestic product have been used interchangeably.
Although both aggregate indicators characterize the level of economic activity in
the country, they differ due to the existence of capital and labor migration. Today,
in almost all countries that use the National Accounting System, the gross domestic
product indicator is recognized as the primary macroeconomic indicator.
In many economic literature sources, GDP has been defined as the sum of
the market prices of final goods and services created within the geographical
territory of the country, regardless of which country owns the resources used in
their production. According to the new interpretation of the UN System of National
Accounts, adopted in 1993 (new edition in 2008), the concept of Gross Domestic
Product (GDP) was clarified.
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 According to the new interpretation:
Gross domestic product is the total sum of market prices for final goods and
services produced within a country over a specified period.
The reason GDP is called "domestic" is that it is created by residents of the
country. A resident is not only understood as a legal entity or individual of the
country. This is because a legal entity of a country is considered a resident of
another country if it has been operating in that country's territory for more than one
year.
"Residents are all economic entities (enterprises, households) that have a
center of economic interest in the economic territory of a given country (engaged
in production activities or residing in the territory of the country for more than one
year), regardless of national affiliation and citizenship."
Embassies and military bases remain the economic space of the countries to
which they belong. This aspect is considered the difference between economic and
geographical territory when calculating GDP.

1.3. Methods of calculating gross domestic products

GDP can be calculated using three methods:
1) production method;
2) expenditure method;
3) income method.
The GDP figure calculated by all three methods should be equal, barring
statistical errors. Additionally, specific requirements must be followed when
calculating GDP using each of these three methods.
The first method is the value-added approach to calculating GDP. In this
approach, the sum of value added created across all sectors of the national
economy is calculated. Value added is determined by subtracting the value of
intermediate products, raw materials, fuel, and materials from the total social
product.

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 GDP calculated using this method allows for determining the role and
contribution of individual sectors in creating this product.
The GDP structure calculated as the sum of value added also includes net
indirect taxes, i.e., the difference between indirect taxes (value-added tax, excise
tax, and customs duty payments received by the state budget) and subsidies
provided to producers from the state budget.
Calculating GDP by expenditure. This method is also known as the final
use method, in which all expenses for purchasing final products are summed up to
calculate GDP. These expenses are grouped as follows:
Household consumption expenditure (C):
a) purchase of durable consumer goods;
b) purchase of everyday consumer goods;
c) payment for consumer services.
Gross domestic private investment expenditure (I):
a) final acquisition of equipment and machinery;
b) expenditure on the construction of enterprises, structures, and residential
buildings;
c) changes in inventories or differences between inventories.
Government purchases of goods and services (G).
This group includes expenses for the purchase of final products and
resources of enterprises by local and central government authorities (construction
of highways and post offices, wages paid at state enterprises). However, it should
be noted that government transfer payments are not included in these expenses.
Net exports (Xn): the difference between a country's export and import
expenses.
The formula for calculating GDP through expenditure can be illustrated as
follows:
GDP=C+ I +G+ X n

When calculating GDP as the sum of revenues, the following indicators are
mainly used:
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 - net indirect taxes (Tn) - the difference between the volumes of indirect
taxes (value-added tax, excise taxes, customs duties) and subsidies;
- wages of hired workers (W) - the nominal amount of all types of wage
payments calculated by private and state companies for hired workers plus social
insurance contributions calculated and paid by employers in relation to the wage
fund.
- Gross profit of corporations + income of non-corporate enterprises (R).
Non-corporate enterprises are small-scale, household-owned enterprises in
which the elements of the enterprise's profit and the owner's wages are combined.
This situation leads to the use of the term mixed income.
When determining GDP in the form of income, economic theory involves
dividing income into the following components:
- depreciation (A);
- indirect taxes (T);
- wages of hired workers (W);
- income in the form of rent payments and rental income ( R1);
- interest income received on capital ( R2);
- income from property (income of non-corporate enterprises) ( P1);
- corporate profit ( P2).
Corporate profits, in turn, are divided into:
a) taxes paid on corporate profits ( P2.1);
b) dividends distributed among shareholders ( P2.2);
c) retained earnings of the corporation ( P2.3).
According to this approach:
GDP ( Y )= A +T n +W + R 1+ R 2+ P1+ P 2

The volume of GDP calculated in terms of expenditures and revenues

corresponds to each other. This is because within the national economy, any
expense incurred by one entity becomes income for another entity.

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 1.4. Other indicators in the system of national accounts and
their interrelationships
According to the system of national accounts, in addition to the GDP
indicator, a number of other indicators are used to analyze the development of the
national economy. These indicators include the Gross National Income (GNI)
indicator. This indicator is essentially the same as the Gross National Product
(GNP), calculated in the previous version of the SNA.
GNI is the sum of the initial income received by residents of the country
from participation in production and property, both within the country and
abroad.
The difference between GDP and GNI can be represented by the following
formula:
GNI=GDP+ income received ¿ abroad by residents of thecountry −income sent abroad by non−resid
The fundamental difference between GDP and GNI is that the former
measures the flow of final goods and services produced by residents of the country,
while the latter measures the initial income received by them.
The Net Domestic Product (NDP) and Net National Income (NNI)
indicators differ from GDP and GNI by the amount of depreciation (consumed
fixed capital).
NDP=GDP− A=NNI=GDP− A
In macroeconomic analysis, the Personal Income (PI) indicator, which is not
included in the SNA, is also used.
PI =NNI−[SSC (Social Security Contributions)+ T (Indirect Taxes)+(P2.1 )Corporate Income Taxes+
PI =NNI−[ SSC+T + P2.1 + P2.2 + P2.3 ]+TR+ R 2

Interest income from government debt is also included in the income

received by the population in the form of interest.
The indicator of Disposable Personal Income (DPI) is calculated by
subtracting income tax, property tax, and certain non-tax payments paid by the
population from personal income.
DPI is used by households for consumption (C) and savings (S).
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 DPI=C + S
In macroeconomic analysis, the indicators of Gross Disposable Income
(GDI) of households and Gross National Disposable Income (GNDI) are
distinguished.
GNDI =GNI + Net transfers received ¿ abroad
Net transfers received ¿ abroad=Transfers received ¿ outside the country−Transfers givenoutside thecountr
Gross National Disposable Income is used for final consumption and
national saving.
GNDI =Final consumption+ National savings
Final consumption includes government consumption expenditures in
addition to household consumption expenditures.

1.5. Nominal and real gross domestic products

The inflationary processes present in the economy complicate the calculation
of GDP. The dynamics of this indicator simultaneously reflect changes in both the
quantity and price levels of produced goods. This means that the GDP volume is
concurrently influenced by changes in both the physical volume of produced goods
and their price levels.
The presence of a continuous inflationary process in the economy
necessitates the calculation of macroeconomic indicators in comparable prices.
This is because inflation distorts the real state of the economy, making it difficult
to analyze the economy, identify problems, and make management decisions. To
accomplish this task, it is necessary to use real indicators calculated in comparative
(base) prices, rather than nominal indicators calculated in current prices. Unlike a
single firm, the national economy produces a vast number of goods and services,
making it challenging to calculate all of them simultaneously at comparable prices.
Therefore, the coefficient of price change (price index) is calculated for the most
important goods and services that constitute a large share of GDP, and the obtained
result is applied to the entire national economy.
To calculate the price index or the inflation rate:
- deflator (Paasche index);
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 - consumer price index (Laspeyres index);
- industrial production price indices must be calculated.
The deflator indicator is calculated using the following formula:
Nominal GDP
Deflator= ×100
Real GDP
Nominal GDP measures the volume of final goods and services at current
prices, while real GDP measures it at constant prices.
Nominal GDP
Real GDP= ×100
Deflator
Thus, real GDP increases only with an increase in production volume, while
nominal GDP can also rise as a result of an increase in the price level of goods and
services.
The consumer price index is determined as follows:

CPI =
∑ i
Q 0 P1
i
× 100
∑ Qi0 Pi0
Here:
Q 0 – volume of goods and services included in the consumer basket in the
i

base year;
P1 – price of the goods in the current year;
i

P0 – price of the goods in the base year.

i

Conditions for calculating the consumer price index:

- the consumer basket is determined for the base year and remains
unchanged for several years;
- only consumer goods and services are included in the consumer basket;
- the volume of goods and services included in the consumer basket should
constitute a large portion of consumer expenditure.
Regarding the GDP deflator index (112.5% by the end of 2024), it should be
noted that this indicator differs in essence from the consumer price index (108.5%
by the end of 2024). While the consumer price index reflects only the change in
prices for a limited number of goods and services included in the consumer basket,
the GDP deflator index covers all goods and services produced in the economy,
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including investment goods, exported goods and services, as well as non-market
(free) services. Additionally, while the consumer price index includes imported
goods, the GDP deflator index calculations only account for goods produced by
residents of the national economy.
The disadvantage of the consumer price index is that, due to the fixed
composition of the consumer basket, it does not allow for consideration of changes
in the proportion of goods and services in the structure of consumer consumption,
nor changes in the quality of goods and services. As a result, this index slightly
overestimates the price level.
The GDP deflator, on the other hand, slightly underestimates the price level
because it does not account for price increases of goods not included in the
structure for the current year. For this reason, the Fisher index is calculated, which
characterizes the average level of these two indices:
FI =√ Idef ∗Icp
The industrial producer price index is calculated similarly to the consumer
price index. However, the composition only includes industrial products, and they
are calculated based on wholesale prices.

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 Summary
The macroeconomic state of a country is assessed through a system of
indicators. In macroeconomic analysis, indicators such as GDP, GNI, NDP, NNI,
PI, DPI, GNDP, S, C, CPI, and GDP deflator are used.
GDP is the total sum of market prices for final goods and services produced
by residents of a country over a certain period.
There are production, final consumption, and distribution methods for
calculating GDP, the first two of which are widely used.
When calculating GDP, it is calculated as the sum of added values to avoid
double-counting the same value. This method is called the production method of
calculating GDP.
GDP in the form of expenditures is calculated by summing the expenditures
of four groups - consumption, investment, government purchases, and net exports.
The volume of GDP calculated by all three methods will be equal, except for
statistical errors.
Since the methodological basis for calculating all indicators of the national
accounting system is the same, it is possible to compare them.
In macroeconomic analysis, the GNI indicator is also used along with GDP.
GNI is the sum of the primary income received by residents of the country
from participation in production and property, both within the country and abroad.
For simplicity, GDP is also referred to as gross output, and GNI as gross
income.
To determine the real change in the volume of national production and
income, price indices are used: GDP deflator and CPI indicators.

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