- Net factor income from abroad : It is the value of factor service export minus factor service

- It is Gross National Disposable income - A combination of of GNI and NUT - Represent the total income resource available to the home country

chap 5 Flashcards by Diego Tejada Cardenas

what flows are recorded in the BALANCES OF PAYMENT ACCOUNT ?

BOP : transactions WITH the rest of the world

BOP = CA + FA + KA

Additionals flows such as cross border flows, etc

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what flows are recorded in the NATIONAL INCOME AND PRODUCT ACCOUNT ?

Transactions WITHIN the home country
Aggregate economic activity
various points in the circular flow of payments

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What is gross national expenditure (GNE) ?

It is the total expenditure on final goods and services in any given period

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Formula for GNE?

GNE = C + I + G

C : personal consumption
I : investment
G : government expenditure

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what is Gross domestic product (GDP) ?

It is the value of all (intermediate and final goods) goods and services produced as output by firms

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What is Gross national income ?

It value of all income is paid to domestic entities (in close economy)

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what measure you can find in a close economy ?

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what measure you can find in a open economy ?

Current Account (CA) :

Trade balance TB (between GNE and GDP)
NFIA : Net Factor Income from abroad (between GDP and GNI)

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what is trade balances ?

It is the differences between payments made for imports and payments received for exports

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Formula for GDP (open economy)

GNE + TB = GDP

the total value of production in the economy

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What is NFIA ?

Net factor income from abroad :

It is the value of factor service export minus factor service

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What is NUT ?

Net Unilateral Transfer :

It equals the value of unilateral transfer the country received from the rest of the world minus those gave to the world

NUT = UTin - UTout

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what is unilateral transfer ?

They are considered non market transactions

such as Gifts : they are different kind of transaction

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What is GNDI?

It is Gross National Disposable income
A combination of of GNI and NUT
Represent the total income resource available to the home country

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what is Current Account (CA) ?

It is the combination of all international transactions I goods, service and income

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What is Financial account (FA) ? (Simplify version)

The value of assets exports minus seats import

- Net assets export is added to GNDI

What is capital account ? (simplify version)

It is the value of transfers from the rest of the world minus THOSE to the rest world

what re the approaches to measuring economic activity ?

The expenditure approach (look demand for goods ) (GNE)
Product Approach (look supply for goods ) (GDP)
Income Approach (GNDI) (payments made)

Formula for GDP:

GDP = C + I + G + ( EX - IM )

C: comsunption

I: investment

G :government

( EX - IM ): TB trade balances

EX: all exports

IM : all imports

Formula for GNI:

GNI: C + I + G + ( EX - IM ) + ( EXfs -IMfs )

C + I + G: GNE

( EX - IM) : Trade balances

( EXfs -IMfs ) : NFIA

Formula for GNDI :

GNDI (Y) = GNE + TB + NFIA + NUT

GNDI (Y) = GNI + NUT

GNDI = GNE + CA

Formula for National Saving :

S = I + CA

S = Y - C -G

Formula for Current Account

CA = S - I

CA = (Sp + Sg ) - I

Formula for Private saving (Sp) :

Sp = Y - T - C (after tax)

Formula for Government Saving (Sg) :

Sg = T - G

What is the Financial account (FA) ? (extensive)

- It is the transactions between RESIDENTS and NOT-RESIDENTS (that involve financial assets ) such as : ``` Real assets (lands and structures) Financial assets (bonds, equity and loans) ``` FA = EXa - IMa basically it measures how the country accumulate or decumulates

What Capital Account cover ? with respect to remaining assets movement

1. Capital transfer (gifts ) 2. The acquisition and disposal of non-financial, non-produced assets (patents , copyrights , trademarks) KA = KAin - KAout

What is External Asset and External liability ?

- External Assets : home hold assets in foreign country | - External liability : foreign hold assets in home country

Foreign Assets (FA^) formula:

FA^ = (EXha - IMha) + (EXfa - EXfa) (same) (home assets moving into foreign ownership) (EXha - IMha) : Net Export of HOME assets (EXfa - EXfa) : Net export of FOREIGN assets FA^ = (EXha - IMha) - (EXfa - EXfa) (same) (Foreign assets moving into home ownership) FA = EXa - IMa ( in either way) (Financial account)

Formula for extra resources (due trade)

Extra resources of home due to all assets trades : FA + KA FA : Financial account KA : Capital account = ( EXa - IMa ) + ( KAin - KAout ) EXa : Value of all assets exported IMa : Value of all assets imported KAin : Capital imported as a gift KAout : CAPITAL exported as gift

Formula BOP identity (balances of payment )

0 = CA + KA + FA FA : Financial account KA : Capital account CA : current account - FA = CA + KA

In what consists the balance of payment ?

- in the Current account : which measure external imbalances ( goods, service, factor service and unilateral tranfers ) - The financial and capital account measures trade

What is ROW ?

- Rest of the world

Main reasons for changes in external wealth :

1. Financial Flows : - the effect of trade increase and decrease the assets and liabilities 2. Valuations effects : - The value of existing external assets and liabilities

Formula for Change in External wealth

W = FA + (Valuations effects ) W: Change in external wealth FA : Financial account W = ( CA + KA ) + (Valuations effects )

In an open economy , GDP is equal to GNE I that true ?

Can FA be split into different types of transactions ?

- Into OSBA : transaction conducted by banks | - FA non-reserve : transactions conducted by everyone else