slide 12-1copyright © 2003 pearson education, inc. section iii overview from international micro...

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Copyright © 2003 Pearson Education, Inc.

Section III overview

From international Micro economy to open-Macro economy About macro economy target : price, growth, employment,

and balance of payments. The core property of open-Macro economic is how an

economy can get the equilibrium of internal- and external 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:– Unemployment

– Saving

– Trade imbalances

– Money 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)• 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 purchases– The amount used by the government

• Current account balance– The amount of net exports of goods and services to

foreigners


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The National Income AccountsFigure 12-1: U.S. GNP and Its Components, 2000

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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).


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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.


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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.


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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


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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.


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• CA balance is equal to the difference between national income and domestic residents’ spending:

Y – (C+ I + G) = CA– CA balance is goods production less domestic demand.

– CA balance is the excess supply of domestic financing. – Example: U.S. CA deficit P. 297


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Figure 12-2: The U.S. Current Account and Net Foreign Wealth Position, 1977-2000


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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.


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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.


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1992-2000 年中国国内储蓄率与总投资率的差异

S I S-I

1992 38.4 37.3 1.11993 41.5 43.5 -2.01994 42.7 41.3 1.41995 42.5 40.8 1.71996 41.4 39.3 2.11997 41.8 38 3.81998 41.3 37.4 3.91999 39.8 37.1 2.72000 38.7 36.2 2.5

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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


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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)


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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


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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.


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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)


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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 Balance of Payments AccountsTable 12-2: Continued

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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


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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


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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.


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Official Reserve Transactions• Central bank

– The institution responsible for managing the supply of money

• Official international reserves– Foreign assets held by central banks as a cushion

against national economic misfortune

• Official foreign exchange intervention– Central banks often buy or sell international reserves in

private asset markets to affect macroeconomic conditions in their economies.


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• Official settlements balance (balance of payments)– The book-keeping offset to the balance of official

reserve transactions

– It 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.


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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.


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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.

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readings 王月溪“解读中国国际收支平衡表：结构特征、形成动因、调整方向及政策建议”《管理世界》 2003 年 4期

方文“对国际收支危机传染的比较研究”《世界经济》 2000 年 6期

王一萱“资本项目国际收支危机与东南亚金融危机”《国际金融研究》 2001 年 10 期

杨柳勇“中国国际收支的超前结构：特征、形成原因、变动趋势和调整方向”

《世界经济》 2002 年 11 期

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