1、Chapter 13,National Income Accounting and the Balance of Payments,13-2,Preview,National income accountsmeasures of national incomemeasures of value of productionmeasures of value of expenditureNational saving, investment, and the current accountBalance of payments accounts,13-3,National Income Accou
2、nts,Records the value of national income that results from production and expenditure.Producers earn income from buyers who spend money on goods and services.The amount of expenditure by buyers = the amount of income for sellers = the value of production.National income is often defined to be the in
3、come earned by a nations factors of production.,13-4,National Income Accounts: GNP,Gross national product (GNP) is the value of all final goods and services produced by a nations factors of production in a given time period.What are factors of production? Factors that are used to produce goods and s
4、ervices: workers (labor services), physical capital (like buildings and equipment), natural resources and others.The value of final goods and services produced by US-owned factors of production are counted as US GNP.,Math Description,Final goods sector: produce Y using capital k1, labor n1, and mate
5、rials m, with prices: r, w, p. The production function is all the revenue is distributed to capital owners, workers and material producers, i.e.,Material goods sector : produce m using capital k2 and labor n2 : The total revenue is distributed to capital owners and workers, The GNP Y is the value of
6、 final goods, since it already records the value of intermediate goods m. Y is the total income of the nation:,13-5,13-6,National Income Accounts: GNP (cont.),GNP is calculated by adding the value of expenditure on final goods and services produced: Consumption: expenditure by domestic consumers Inv
7、estment: expenditure by firms on buildings & equipment Government purchases: expenditure by governments on goods and servicesCurrent account balance (exports minus imports): net expenditure by foreigners on domestic goods and services,13-7,Fig. 13-1: U.S. GNP and Its Components,Source: U.S. Departme
8、nt of Commerce, Bureau of Economic Analysis.,Chinas GNP and Its Components,4,More on Chinese Economy,More on Chinese Economy,13-11,National Income Accounts,GNP is one measure of national income, but a more precise measure of national income is GNP adjusted for following:Depreciation of physical capi
9、tal results in a loss of income to capital owners, so the amount of depreciation is subtracted from GNP. Unilateral transfers to and from other countries can change national income: payments of expatriate workers sent to their home countries, foreign aid and pension payments sent to expatriate retir
10、ees.,13-12,National Income Accounts (cont.),Another approximate measure of national income is gross domestic product (GDP): Gross domestic product measures the final value of all goods and services that are produced within a country in a given time period. GDP = GNP payments from foreign countries f
11、or factors of production + payments to foreign countries for factors of production,13-13,GNP = Expenditure on a Countrys Goods and Services,The national income identity for an open economy is Y = C + I + G + EX IM = C + I + G + CA,13-14,Expenditure and Production in an Open Economy,CA = EX IM = Y (C
12、 + I + G )When production domestic expenditure, exports imports: current account 0 and trade balance 0when a country exports more than it imports, it earns more income from exports than it spends on importsnet foreign wealth is increasingWhen production domestic expenditure, exports imports: current
13、 account 0 and trade balance I, then CA 0 so that net foreign investment and financial capital outflows for the domestic economy are positive.,16,International Capital Flows: Emerging Economies,17,International Capital Flows: Emerging Economies,18,International Capital Flows: Advanced Economies,19,I
14、nternational Capital Flows: Advanced Economies,International Capital Flows,13-27,How Is the Current Account Related to National Saving? (cont.),CA = Sp + Sg I= Sp government deficit IGovernment deficit is negative government savingequal to G T A high government deficit causes a negative current acco
15、unt balance when other factors remain constant.,Government Deficit and Current Account: US,21,Government Deficit and Current Account: EU,21,Government Deficit and Current Account: EU,21,13-31,Balance of Payments Accounts,A countrys balance of payments accounts accounts for its payments to and its re
16、ceipts from foreigners.An international transaction involves two parties, and each transaction enters the accounts twice: once as a credit (+) and once as a debit ().,13-32,Balance of Payments Accounts (cont.),The balance of payments accounts are separated into 3 broad accounts:current account: acco
17、unts for flows of goods and services (imports and exports).financial account: accounts for flows of financial assets (capital).capital account: flows of special categories of assets (capital): typically nonmarket, non-produced, or intangible assets like debt forgiveness, copyrights and trademarks.,U
18、.S. Balance of Payment, 2009,13-33,Chinas BOP in 2010,24,13-35,Example of Balance of Payments Accounting,U.S. import toys from Chinese producer.Chinese seller deposits the check in a U.S. bank.,13-36,Example of Balance of Payments Accounting (cont.),U.S. people buy a share of PetroChina(中石油).PetroCh
19、ina deposits the money in a U.S. bank.,13-37,Example of Balance of Payments Accounting (cont.),Chinese banks forgive a $50 M debt owed by the government of DPRK through debt restructuring.Chinese banks who hold the debt thereby reduce the debt by crediting DPRK bank accounts.,13-38,How Do the Balanc
20、e of Payments Accounts Balance?,Due to the double entry of each transaction, the balance of payments accounts will balance by the following equation:current account + financial account + capital account = 0,13-39,Balance of Payments Accounts,The 3 broad accounts are more finely divided:Current accou
21、nt: imports and exports merchandise (goods like DVDs) services (payments for legal services, shipping services, tourist meals, etc.)income receipts (interest and dividend payments, earnings of firms and workers operating in foreign countries),13-40,Balance of Payments Accounts (cont.),Current accoun
22、t: net unilateral transfers gifts (transfers) across countries that do not purchase a good or service nor serve as income for goods and services producedCapital account: records special transfers of assets, but this is a minor account for the U.S.,U.S. Balance of Payment, 2009,13-41,Chinas BOP in 20
23、10,31,13-43,Balance of Payments Accounts (cont.),Financial account: the difference between sales of domestic assets to foreigners and purchases of foreign assets by domestic citizens.Financial inflow Foreigners loan to domestic citizens by buying domestic assets. Domestic assets sold to foreigners a
24、re a credit (+) because the domestic economy acquires money during the transaction.Financial outflow Domestic citizens loan to foreigners by buying foreign assets. Foreign assets purchased by domestic citizens are a debit () because the domestic economy gives up money during the transaction.,U.S. Ba
25、lance of Payment, 2009,13-44,Chinas BOP, 2010,33,13-46,Balance of Payments Accounts (cont.),Financial account has at least 3 subcategories:Official (international) reserve assets All other assetsStatistical discrepancy,13-47,Balance of Payments Accounts (cont.),Statistical discrepancyData from a tra
26、nsaction may come from different sources that differ in coverage, accuracy, and timing. The balance of payments accounts therefore seldom balance in practice.The statistical discrepancy is the account added to or subtracted from the financial account to make it balance with the current account and c
27、apital account.,U.S. Balance of Payment, 2009,13-48,Chinas BOP in 2010,36,Net Error and Omission in China,13-51,Balance of Payments Accounts (cont.),Official (international) reserve assets: foreign assets held by central banks to cushion against financial instability.Assets include government bonds,
28、 currency, gold, and special drawing right (SDR) at the International Monetary Fund.Official reserve assets owned by (sold to) foreign central banks are a credit(+).Official reserve assets owned by (purchased by) the domestic central bank are a debit(-).,U.S. Balance of Payment, 2009,13-52,Chinas BO
29、P in 2010,36,13-54,Balance of Payments Accounts (cont.),The value of the official reserve assets is called the official settlements balance or “balance of payments” .It is the sum of the current account, the capital account, the nonreserve portion of the financial account, and the statistical discre
30、pancy.A negative official settlements balance may indicate that a country is depleting its official international reserve assets,U.S. Balance of Payment, 2009,13-55,中国2010年的国际收支账户,39,13-57,U.S. Balance of Payments Accounts,The U.S. has the most negative net foreign wealth in the world, and so is the
31、refore the worlds largest debtor nation.Its current account deficit in 2010 was $441 billion dollars, so that net foreign wealth continues to decrease. In 2010, US net foreign wealth is -$2.6 trillion.The value of foreign assets held by the U.S. has grown since 1980, but liabilities of the U.S. (deb
32、t held by foreigners) has grown faster.,13-58,13-59,U.S. Balance of Payments Accounts (cont.),About 70% of foreign assets held by the U.S. are denominated in foreign currencies and almost all of U.S. liabilities (debt) are denominated in dollars.Changes in the exchange rate influence value of net fo
33、reign wealth (gross foreign assets minus gross foreign liabilities).Appreciation of the value of foreign currencies makes foreign assets held by the U.S. more valuable, but does not change the dollar value of dollar-denominated debt for the U.S.,13-60,Chinas Balance of Payments Accounts,The China ha
34、s the most positive net foreign wealth in the world, and so is therefore the worlds largest creditor nation.Its current account surplus in 2010 was $305 billion dollars, so that net foreign wealth continues to increase. In 2010, Chinas net foreign wealth is $1.5 trillion.The value of foreign assets
35、held by the China has grown since 1990s, and liabilities of the China (debt held by foreigners) has grown slower.,13-61,Summary,A countrys GNP is roughly equal to the income received by its factors of production.In an open economy, GNP equals the sum of consumption, investment, government purchases,
36、 and the current account.GDP is equal to GNP minus net income from foreign countries for factors of production. It measures the value of output produced within a countrys borders.,13-62,Summary (cont.),National saving minus domestic investment equals the current account ( exports minus imports).The
37、current account equals the countrys net foreign investment (net outflows of financial assets).The balance of payments accounts records flows of goods transactions of financial assets appear in the financial account.,13-63,Summary (cont.),Official international reserve assets are a component of the f
38、inancial account, which records official assets held by central banks.The official settlements balance is the negative value of official international reserve assets, and it shows a central banks holdings of foreign assets relative to foreign central banks holdings of domestic assets.The U.S. is the largest debtor nation, and its foreign debt continues to grow because its current account continues to be negative. China is just opposite.,
