The concept of “national economy” is one of the most important in economic theory, since it is the national economy that is the object of study at the macro level. What is it and what goals does it pursue?
The national economy can be defined as a historically formed system of social reproduction of the country, interrelated branches, types of production and territorial complexes, i.e. a system that covers all established forms of social division and cooperation of labor. In accordance with this, the country’s economy includes production (material and non-material production) and non-production spheres.
Material production, as is known, involves the transformative influence of man on nature, as a result of which consumer goods and means of production are created. It has a complex sectoral technological and functional structure and includes industry consisting of two groups of industries – mining and manufacturing, agriculture and forestry, construction, industries directly related to bringing the product to the consumer (transport, trade, communications).
In economic theory, all enterprises of the material sphere are grouped into two divisions:
– production of means of production;
– Production of consumer goods.
In statistics, they are usually distinguished as I division and II division, and in industry – groups “A” and “B”.
Intangible production differs from material production in its product, which has an intangible form: scientific knowledge and information; works of art (films, books, theatrical productions); Intangible production includes science and scientific services, art, culture, education, health care, etc.
The non-productive sphere, although it does not produce certain products and services, but still its activities are necessary for society. This includes defense, judicial and legal bodies, religious institutions and other public organizations.
The subjects of the national economy are enterprises (entrepreneurial firms), households, and the state, united in a single system by economic relations that perform certain functions in the social division and cooperation of labor, producing goods or services. 2.1.).
In Fig. 2.1. there are two markets (the market of goods and services and the market of resources – factors of production), two flows (the flow of goods and services and the flow of money) and three groups of business entities (households, the state and enterprises, entrepreneurial firms), between which certain economic operations are performed, forming commodity and cash flows.
The household sector includes all private national units whose activities are aimed at meeting their own needs. Households are the owners of all factors of production and, above all, of the privately owned labour force. By selling them or renting them out, for example, households derive their income, which they allocate between current consumption and savings. Consequently, households exhibit three types of economic activity: they propose factors of production; consume part of the income received, buying consumer goods, and save another part of it, acquiring securities and real estate.
The business sector is the totality of all enterprises (firms) registered within the country. As is known from microeconomics, a firm is an organization created for the production and sale of goods. Its activity is reduced to the purchase of factors of production, the sale of products and services, the maintenance and development of the production base. In other words, the types of economic activity of the business sector are reduced to the demand for factors of production, the supply of goods and investment.
The public sector refers to all state institutions and institutions. The State is engaged in the production of public goods, which, unlike those produced in the business sector, go to the consumer “free of charge”, i.e. without direct payment for each unit of good consumed. Among the most important benefits of this kind are security, achievements of fundamental science, services of state social and production infrastructures.
The results of the state’s activities as a producer of public goods are manifested in an increase in the productivity of the business sector and a decrease in the cost of household consumption. If the state does not build highways, the business sector will have higher transport costs; when there is no “free” public education, households are forced to pay directly for children’s education.
The specificity of the final results of the economic activity of the state leads to the fact that, unlike the business sector, the state does not pursue the goal of maximizing profits.
For the production of public goods, the state buys as means of production goods produced in the business sector. The cost of buying goods, together with the cost of paying civil servants, will be called public spending in the future. The source of public expenditure is the taxes levied on households and entrepreneurs.
In the expenditure part of the state budget, payments to households (state pensions and allowances) and to the business sector (subsidies and subventions) have a significant share. These payments are recorded as negative taxes. In addition to the current costs of producing public goods, the state, as a rule, invests in real capital. In terms of their impact on the economic situation, the real investments of the state differ significantly from its costs for the purchase of weapons or the maintenance of the apparatus of officials. However, for the sake of simplification, it is accepted that all investments are made by the private sector, and the state budget is spent only on the production of public goods. One of the most important economic functions of the state in the person of its Central (National) Bank is the creation (supply) of money necessary to meet the needs of households, entrepreneurs and the state itself.
Thus, the economic activity of the state as a macroeconomic entity is manifested in the purchase of goods, the collection of taxes and the supply of money.
The sector abroad includes economic entities with a permanent location outside the country, as well as foreign state institutions. The impact of abroad on the domestic economy is carried out through the mutual exchange of goods, services, capital and national currencies.
The national economy of each country strives to achieve certain goals. The main functional goal of the national economy is to meet the needs of the entire population of the country, which it implements through the implementation of a number of sub-goals:
1. Stable, sustainable economic growth means a steady increase in the volume of production of goods and services in the country without recessions and crises, which creates an opportunity to meet the growing needs and ensure the necessary amount of accumulation.
The extent to which this goal has been achieved is characterized by such indicators as the growth rate of real gross domestic product (GDP) or national income (ND) in general or per capita. For example, the rate of economic growth for the year can be determined by the formula:
,
where: 
– GDP in the analysed year t;
– GDP in the base year t–1.
2. Stable price level. When considering this issue, it is necessary to take into account that prices that have remained unchanged for a long time slow down the growth rate of gross domestic product, reduce employment of the population. Low prices attract the consumer, but deprive the producer of the incentive. High prices, on the contrary, stimulate production, but reduce the purchasing power of the population. Therefore, achieving price stability in practice does not mean “freezing” them for a long period, but a smooth regulated growth that meets the point of equilibrium of supply and demand. The level of price stability is checked using the consumer price index (CPI). To calculate it, the so-called “consumer basket” is used, which includes all goods and services purchased and paid for by the average resident of the country. The sum of all prices for them is the price of the consumer basket. The consumer price index in the analyzed year t can be determined by the formula:
CPI | = | The price of the consumer basket in the year t | x 100% |
The price of the consumer basket in year t, but in prices in year t–1 |
3. High level of employment. It is achieved when everyone who wants to get a job finds it. If not everyone wants to get a job, it means that full employment does not cover the entire working-age population. In addition, in any country at any given time there is a certain number of people temporarily unemployed due to a change of place of work or residence (the so-called frictional unemployment). At the same time, there is always structural unemployment due to the inconsistency of the structure of new jobs with the structure of the existing labor force. Thus, full-time employment is usually less than 100% of the working-age population. The unemployment rate at full employment is called the natural unemployment rate. It is equal to the sum of the levels of frictional and structural unemployment. The extent to which this objective has been achieved is determined by the following indicators:
(a) Normal employment | = | Number of employed population | x100%; |
Number of working-age population |
b) Actual level of employment | = | Number of employed population | x100%; |
Labour supply |
Where: Labour supply = number of employed + number of unemployed but job seekers
c) Actual unemployment rate | = | Number of unemployed | х100% |
Labour supply |
4. Maintaining the foreign trade balance, i.e. achieving a relative equilibrium between exports and imports, as well as stability of the exchange rate of the national currency. If more goods are imported into a country than are sold abroad, a negative trade balance occurs. If exports are larger than imports, they talk about a surplus. A significant impact on the state of the trade balance is exerted by the exchange rate – the value of the monetary unit of one country, expressed in the monetary unit of another country.
5. Achieving high production efficiency, which implies obtaining maximum returns with a minimum of expenditure of available limited resources. It should be noted that in this case, society strives to achieve economic efficiency: the greatest results at the lowest cost. At the same time, it is necessary to ensure the achievement of social efficiency, i.e. compliance of the results of economic activity with the social goals of society.
6. Equitable distribution of income. Within the framework of a market economy, those incomes from the invested factors of production, which will be determined by the efficiency of the producing resources, will be fair. However, in society there are people (the elderly, children, the disabled, etc.) who do not own any of the factors of production, they have nothing to offer in the market of factors of production. Nor do those engaged in the production of public goods receive market income, since their maintenance becomes the lot of the state. Thus, the market does not ensure equality in the distribution of income and the state can correct this deficit through transfer payments (unemployment benefits, old-age and disability pensions) or by interfering with the pricing mechanism, introducing legislation on the minimum wage, setting purchase prices for agricultural producers, etc.
7. Protection of the natural environment and improvement of the human environment. This is a very important goal, because environmental pollution has a detrimental effect on people’s health, on their life expectancy. At the same time, the costs of protecting the environment increase, and this leads to a decrease in the GDP from which they are retained, and ultimately the well-being of the population deteriorates. Nevertheless, the task of the national economy is to ensure environmental protection, the creation and implementation of technologies that ensure waste-free production, the development of medicine, etc. In various economic systems, the implementation of this goal has its own characteristics and is largely due to the economic policy of the state. In the Republic of Belarus, issues of environmental protection and rational use of natural resources are closely related to overcoming the consequences of the Accident at the Chernobyl Nuclear Power Plant.
8. Economic freedom. All subjects of the national economy should have a high degree of freedom in their economic activities, which stimulates the search for ways to increase production efficiency.
All these and other goals require for their implementation the formulation of specific tasks, which are reflected in the economic policy of the state (Fig. 2.2.).