1 section iii overview from international micro economy to open-macro economy about macro economy...
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Section III overview From international Micro economy to open-Macro
economy About macro economy target : price, growth,
employment, balance of payments, and Just distribution.
The core property of open-Macro economic is how an economy can get the internal- and external equilibrium
What should we learn from section III?_ an integrated model of exchange rate and output determination
This section comprises of 6 chapters, namely 12-17
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Chapter 12 National Income Accounting and Chapter 12 National Income Accounting and the Balance of Paymentsthe Balance of Payments
Introduction The National Income Accounts National Income Accounting for an Open
Economy The Balance of Payment Accounts Summary
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Introduction
Microeconomics It studies the effective use of scarce resources from
the perspective of individual firms and consumers.
Macroeconomics It studies how economies’ overall levels of
employment, production, and growth are determined. It emphasizes four aspects of economic life:
UnemploymentTrade imbalancesSavingMoney and the price level
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The national income accounts and the balance of payments accounts are essential tools for studying the macroeconomics of open, interdependent economies.
National income accounting Records all the expenditures that contribute to a
country’s income and output Balance of payments accounting
Helps us keep track of both changes in a country’s indebtedness to foreigners and the fortunes of its export- and import-competing industries
Introduction
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The National Income Accounts Gross national product (GNP)国民生产总值 The value of all final goods and services
produced by a country’s factors of production and sold on the market in a given time period
It is the basic measure of a country’s output. Real and nominal GNP with GNP price
inflator
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GNP is calculated by adding up the market value of all expenditures on final output: Consumption
The amount consumed by private domestic residents Investment
The amount put aside by private firms to build new plant and equipment for future production
Government purchasesThe amount used by the government
Current account balanceThe amount of net exports of goods and services to
foreigners
The National Income Accounts
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National Product and National Income National Income
It is earned over a period by its factors of production.It must equal the GNP a country generates over
some period of time. One person’s spending is another’s income (i.e., total
spending must equal total income).
The National Income Accounts
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Capital Depreciation, International Transfers, and Indirect Business Taxes Adjustments to the definition of GNP:
Depreciation of capital It reduces the income of capital owners. It must be subtracted from GNP (to get the net national product).
Net unilateral transfers of income They are part of a country’s income but are not part of its
product. They must be added to the net national product.
Indirect business taxes They are sales taxes. They must be subtracted from GNP.
The National Income Accounts
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Gross Domestic Product (GDP) It measures the volume of production within a
country’s borders. It equals GNP minus net receipts of factor
income from the rest of the world. It does not correct for the portion of countries’
production carried out using services provided by foreign-owned capital.
The National Income Accounts
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National Income Accounting for an Open Economy
Consumption The portion of GNP purchased by the private
sector to fulfill current wants Investment
The part of output used by private firms to produce future output
Government Purchases Any goods and services purchased by federal,
state, or local governments
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The National Income Identity for an Open Economy It is the sum of domestic and foreign expenditure on the
goods and services produced by domestic factors of production:
Y = C + I + G + EX – IM (12-1)where:
Y is GNP C is consumption I is investment G is government purchases EX is exports IM is imports
In a closed economy, EX = IM = 0.The National Income Accounts
National Income Accounting for an Open Economy
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The Current Account and Foreign Indebtedness Current account (CA) balance
The difference between exports of goods and services and imports of goods and services (CA = EX – IM)
A country has a CA surplus when its CA > 0.A country has a CA deficit when its CA < 0.CA measures the size and direction of international
borrowing. A country’s current account balance equals the change
in its net foreign wealth.
National Income Accounting for an Open Economy
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CA balance is equal to the difference between national income and domestic residents’ spending:
Y – (C+ I + G) = CACA balance is goods production less domestic
demand. CA balance is the excess supply of domestic
financing. Example: U.S. CA deficit P. 297
National Income Accounting for an Open Economy
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美国经常项目余额( 1960-2004 )
-700
-600
-500
-400
-300
-200
-100
0
100
1960 1965 1970 1975 1980 1985 1990 1995 2000
year
bill
ions
of
curr
ent
doll
ars
Source: Bureau of Economic Analysis, US Department of Commerce
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中国经常项目余额 (1984-2004)数据来源:中国国际收支表 1982-2004
CA
-20000- 10000
01000020000300004000050000600007000080000
CA
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Saving and the Current Account National saving (S)
The portion of output, Y, that is not devoted to household consumption, C, or government purchases, G.
It always equals investment in a closed economy. A closed economy can save only by building up its capital
stock (S = I). An open economy can save either by building up its capital
stock or by acquiring foreign wealth (S = I + CA).
A country’s CA surplus is referred to as its net foreign investment.
National Income Accounting for an Open Economy
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Private and Government Saving Private saving (Sp)
The part of disposable income that is saved rather than consumed
Sp = I + CA – Sg = I + CA – (T – G) = I + CA + (G – T) (12-2)
T is the government's “income” (its net tax revenue) Sg is government savings (T-G)
Government budget deficit (G – T)It measures the extent to which the government is
borrowing to finance its expenditures.
National Income Accounting for an Open Economy
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US current account and public saving relative to GDP, 1960-2004
-8%
-6%
-4%
-2%
0%
2%
4%
1960 1965 1970 1975 1980 1985 1990 1995 2000
Pe
rce
nt
of
GD
P
current account public saving
Inverse Relationship Between Public Saving and Current Account?
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中国国内储蓄、投资与外国资本流入( 1984-2004)
0
20000004000000
60000008000000
1000000012000000
14000000
国内储蓄 投资 外国资本流入
外国资本流入数据来源于中国国际收支表,外国资本表示 FDI 、银行贷款及、证券投资及短期资金之和,数据按当年汇率水平转换成人民币表示。国内储蓄、投资(指固定资本形成)数来源于国际金融统计。
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财政赤字与经常项目 ( 中国数据 1989-2004)数据来源 : 《中国统计年鉴》 2005
- 4000. 00
- 2000. 00
0. 00
2000. 00
4000. 001989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
财政收支差额 进出口差额
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The Balance of Payments Accounts
A country’s balance of payments is a summary statement in which all the transactions of the residents of this country with the residents of all others are recorded during a particular period of time
Every international transaction automatically enters the balance of payments twice: once as a credit (+) and once as a debit (-)_ Double –entry
The rules of entry : Any transaction which induce the increase of foreign exchange supply and debt , the decrease of claim enters credit(+) ; Any transaction which induce the increase of demand for foreign exchange and claim, the decrease of debt enters debit(-).
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Three types of international transactions are recorded in the balance of payments: CA shows the transaction of real economy, namely: Exports or
imports of goods or services, income and unilateral transfers of goods or services
Financial account shows up the international settlements and transactions of financial assets; Any transaction of international financial assets with central bank enters the international reserve account
Unilateral transfers of wealth between countries are recorded in the capital account, when they are involved in the transfers of financial assets; They are recorded in the CA, when they
are involved in the transfers of goods or service
The Balance of Payments Accounts
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Examples of Paired Transactions A U.S. citizen buys a $1000 typewriter from an
Italian company, and the Italian company deposits the $1000 in its account at Citibank in New York.That is, the U.S. trades assets for goods.This transaction creates the following two offsetting
entries in the U.S. balance of payments: It enters the U.S. CA with a negative sign (-$1000). (induces
the increase of demand for foreign exchange) It shows up as a $1000 credit in the U.S. financial account.
(induces the increase of debt to nonresidents)
The Balance of Payments Accounts
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一中国外贸公司进口货物,价值 100 万美圆,货到后三个月付款
一旅游公司组织新、马、泰游,向对方支付 10 万美圆
我国在海啸灾害中向受灾国捐赠 2 亿美圆,其中 1亿为物资
松下公司在杭州扩大投资 2000 万美圆, 1 千万为进口设备, 1 千万为现金
我国向世界银行借款 1 亿美圆 中国银行卖给中央银行一亿美圆 balance
charter.doc
国际收支记账法则
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A U.S. citizen buys a $95 newly issued share of stock in the United Kingdom oil giant British Petroleum (BP) by using a check drawn on his stockbroker money market account. BP deposits the $95 in its own U.S. bank account at Second Bank of Chicago.That is, the U.S. trades assets for assets.This transaction creates the following two offsetting
entries in the U.S. balance of payments: It enters the U.S. financial account with a negative sign (-$95). It shows up as a $95 credit in the U.S. financial account.
The Balance of Payments Accounts
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The Fundamental Balance of Payments Identity Any international transaction automatically gives
rise to two offsetting entries in the balance of payments resulting in a fundamental identity:
Current account + financial account + capital account = 0 (12-3)2004
The Balance of Payments Accounts
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The Balance of Payments AccountsTable 12-2: U.S. Balance of Payments Accounts for 2000
(billions of dollars)
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The Current Account, Once Again The balance of payments accounts divide
exports and imports into three categories:Merchandise trade
Exports or imports of goods
Services Payments for legal assistance, tourists’ expenditures,
and shipping fees
Income International interest and dividend payments and the
earnings of domestically owned firms operating abroad
The Balance of Payments Accounts
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The Capital Account It records asset transfers and tends to be small
for the United States. The Financial Account
It measures the difference between sales of assets to foreigners and purchases of assets located abroad.Financial inflow (capital inflow)
A loan from the foreigners with a promise that they will be repaid
Financial outflow (capital outflow) A transaction involving the purchase of an asset from
foreigners
The Balance of Payments Accounts
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The Statistical Discrepancy Data associated with a given transaction may
come from different sources that differ in coverage, accuracy, and timing. This makes the balance of payments accounts
seldom balance in practice.Account keepers force the two sides to balance by
adding to the accounts a statistical discrepancy.It is very difficult to allocate this discrepancy
among the current, capital, and financial accounts.
The Balance of Payments Accounts
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Official Reserve Transactions Central bank
The institution responsible for managing the supply of money
Official international reservesForeign assets held by central banks as a cushion
against national economic misfortune
Official foreign exchange interventionCentral banks often buy or sell international
reserves in private asset markets to affect macroeconomic conditions in their economies.
The Balance of Payments Accounts
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Official settlements balance (balance of payments)The book-keeping offset to the balance of official
reserve transactionsIt is the sum of the current account balance, the capital
account balance, the nonreserve portion of the financial account balance, and the statistical discrepancy.
Example: The U.S. balance of payments in 2000 was -$35.6 billion, that is, the balance of official reserve transactions with its sign reversed.balance charter.doc
A country with a negative balance of payments may signal that it is running down its international reserve assets or incurring debts to foreign monetary authorities.
The Balance of Payments Accounts
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Case Study: Is the United States the World’s Biggest Debtor? At the end of 1999, the United States had a
negative net foreign wealth position far greater than that of any other single country.
The United States is the world’s biggest debtor. However, the United States has the world’s
largest GNP.
The Balance of Payments Accounts
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Summary
A country’s GNP is equal to the income received by its factors of production. GDP is equal to GNP less net receipts of factor
income from abroad, measures the output produced within a country’s territorial borders.
In a closed economy, GNP must be consumed, invested, or purchased by the government. In an open economy, GNP equals the sum of
consumption, investment, government purchases, and net exports of goods and services.
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Summary
The capital account records asset transfers and tends to be small in the United States.
Any current account deficit must be matched by an equal surplus in the other two accounts of the balance of payments, and any current account surplus by a deficit somewhere else.
International asset transactions carried out by central banks are included in the financial account.
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Summary All transactions between a country and the
rest of the world are recorded in its balance of payments accounts.
The current account equals the country’s net lending to foreigners. National saving equals domestic investment
plus the current account. Transactions involving goods and services
appear in the current account of the balance of payments, while international sales or purchases of assets appear in the financial account.