Study sheet: Macroeconomics and National Accounts

📋 Course Outline

1. Measuring Unemployment and Its Limits
2. National Accounts Bases and Revisions
3. European System of Accounts
4. Physiocrats and the Economic Circuit
5. The Simplified Economic Circuit
6. From National Accounts to Macroeconomics

📖 1. Measuring Unemployment and Its Limits

🔑 Key Concepts & Definitions

• Unemployment : Identified when a working-age individual did not work during the reference week and is available for work.
• Unemployment halo : The unemployment halo consists of intermediate situations between unemployment, employment, and inactivity, including reduced hours, training, withdrawal from the labour market, voluntary reduced working time, and undeclared work.

📝 Essential Points

📌 Under the BIT definition, working for only 1 hour during the reference week is sufficient for an individual to be classified as employed, which tends to minimize measured unemployment.

📐 Formula — The BIT unemployment rate equals the number of BIT unemployed divided by the labour force, which is the sum of employed people and BIT unemployed people: $u = \frac{U}{E+U}$.

💡 Memory Hook

Employment, unemployment, and inactivity are distinct, but the unemployment halo lies between them.

📖 2. National Accounts Bases and Revisions

🔑 Key Concepts & Definitions

• National accounts base : A national accounts base is a period during which concepts, sources, classifications, processing methods, and the reference year for constant prices remain unchanged.
• Retropolation : Extending the new base into the past by recalculating older series according to the framework of the new base.

★ Must-know

• The expanded investment measure included: military equipment, the acquisition or own-account production of databases, research and development expenditure

Further detail

• French national accounts have been published every year since 1949, and a base generally lasts 5 years.

• For a given year n, national accounts are published in a provisional version in n+1, a semi-final version in n+2, and a final version in n+3.

💡 Memory Hook

Define, measure, revise, retropolate.

📖 3. European System of Accounts

🔑 Key Concepts & Definitions

• European System of Accounts : The European framework used to harmonize national accounting concepts, classifications, and measurement practices.
• National accounting : Records all operations during the year involving agents belonging to the economic territory of France within a balanced accounting framework.

📝 Essential Points

• Bases defined from 1971 onward were aligned with international recommendations, particularly the System of National Accounts and the European System of Accounts.

📖 4. Physiocrats and the Economic Circuit

📝 Essential Points

• The Physiocrats, active during the 17th and 18th centuries, emphasized the primacy of nature and advocated laissez-faire because they considered the economy governed by natural mechanisms.

• Pierre le Pesant de Boisguilbert placed agriculture at the centre of economic activity because it influenced industry and the rest of the economy.

• 🔄 The negative spiral proceeds through (Pierre le Pesant de Boisguilbert, 1646-1714):

  1. excessive taxes and trade barriers
  2. underconsumption
  3. rising agricultural stocks
  4. falling farmers’ incomes
  5. lower farmers’ consumption
  6. falling industrial sales

📌 Boisguilbert proposed reducing tax rates while broadening the tax base and liberalizing grain trade to restore farmers’ incomes and clear stocks toward deficit regions or abroad. — Pierre le Pesant de Boisguilbert, 1646-1714

💡 Memory Hook

Agricultural weakness → lower incomes → lower consumption → economic decline.

📖 5. The Simplified Economic Circuit

🔑 Key Concepts & Definitions

• Economic circuit : Represents the relationships among economic agents and describes exchanges between them.
• Aggregate : A quantity measured at a global level, such as national consumption or national investment.

📝 Essential Points

• The simplified circuit contains:
  • households
  • firms
  • public administrations
  • product markets
  • factor markets

📌 Social benefits and subsidies are directly paid to beneficiaries and therefore do not pass through markets, whereas taxes and social contributions finance public administrations and social security.

💡 Memory Hook

Markets connect agents, whereas transfers bypass markets.

📖 6. From National Accounts to Macroeconomics

🔑 Key Concepts & Definitions

• Resident agent : Has a centre of economic interest in the economic territory because it carries out economic operations there for 1 year or more.

★ Must-know

• National accounting monitors: production, household consumption and saving, firm investment, the public budget balance, the balance of exchanges with foreign countries

📌 National accountants work ex post, whereas macroeconomic theories use national accounts to test explanations and guide policies concerning demand, supply, output, and unemployment.

• 🔄 The Keynesian mechanism is (John Maynard Keynes, 1883-1946):

  1. higher aggregate demand
  2. higher production
  3. more hiring
  4. lower unemployment

• In the liberal approach, lower taxes on capital increase capital profitability, encourage firms to produce more, and reduce unemployment.

Further detail

• National accounting uses the calendar year as its time framework and France’s economic territory as its spatial framework.

💡 Memory Hook

Keynesian demand drives output; liberal supply incentives drive production.

📊 Synthesis Tables

Macroeconomic Approaches

Approach	Main driver	Mechanism	Expected unemployment effect
Keynesian	Aggregate demand	Higher demand → higher production → more hiring	Lower unemployment
Liberal	Aggregate supply	Lower capital taxes → higher profitability → more production	Lower unemployment