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market, whose operation, which is affected by its institutional features, is essential in delimiting potential growth in an economy. As a result, the supply-side approach to eco-nomic analysis has been structured around its most important components: productive
52: NdEL @SThAcA ANc UAhIO JmgiIEhcOactivity and the labour market. First, we describe the conditions of supply in the econo-my from an aggregate standpoint, and its main determinants in the medium term, as we observe in the supply block of Banco de España’s quarterly model (MTBE). We then move down to the level of the key branches of economic activity, showing how the pro-ductive process can be rationalised based on sectoral production functions. This analysis is carried out for what is referred to as the market economy, that excludes non-commer-cial activities carried out primarily by the public sector, whose determinants are specific to this sector. In the case of the labour market, the analytical techniques available for short-term monitoring and analysis of the key macro-magnitudes that characterise it in the longer term are described. To that end, we first introduce the key institutional as-pects of this market, that are essential in understanding its functioning, and we review the setting of wages and the labour supply, which, along with demand, determine the levels of employment and unemployment. Table 1 provides an overview of the main magnitudes in the National Accounts system that reflect developments in economic ac-tivity and the labour market, that will be analysed in this chapter. Last, we shall briefly describe a number of different methodologies used to estimate growth potential and to distinguish among the factors that determine long-term economic growth and its cycli-cal or medium-term movements, which is the time frame normally used for forecasting exercises.1;;7-200020012002200520062. '$:184.108.40.206.<4.72.2. /ET TAXES<.52.83.0=.<5.02.4. '6!3.=220.127.116.11.=AWa]Eb EYONO^f5/94/;4/33/;4/6!GRICULTURE2.8-4.92.7-2.5-0.=)NDUSTRY AND ENERGY3.94.<0.72.34.2#ONSTRUCTION5.8<.3<.45.33.7#OMMERCIAL SERVICES3.=18.104.22.168.<BON.YO^^EaYIWL SEacIYES4/:4/;4/95/55/74. >ABOUR MARrET. ?ARrET ECONOMY *A+4.2. %MPLOYED PERSONS3.24.<2.<2.74.<'^_LOfEES5/;5/34/34/74/7HEL[.E^_LOfEZ 1/71/6.3/1.3/64/54.4. #OMPENSATION PER EMPLOYEE3.43.95.05.03.4;[email protected]#%\ )/% */ATIONAL ;TATISTICS )NSTITUTE+.W/KHERE IS A DETAILED LISTING BY BRANCH OF ACTIVITY FOR THESE VARIABLES.W\4X\4 !V* R!#W\[ U![[email protected] [@[email protected] 4[@V*34!#[email protected] 1 @!K%; J& #(!/'% *[+
WiTPiT ANc THE LAbOih MAhfET 52;2 !NALYSIS OF SiPPLY ANc ACTIjITY IN THE PhOciCTIjE SECTOhSAs indicated in the introduction, in the short term, demand determines the level of pro-duction in an economy, while the long-term equilibrium level of production is determined by the supply conditions in the productive sectors. As a result of the interaction of these two types of factors, prices and quantities gradually adjust to equilibrium in the medium term. Schematically, we can say that the intersection of notional demand (which is nega-tively dependent on the price level) and equilibrium production in the economy (which is