chap 5 Flashcards
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
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
What is gross national expenditure (GNE) ?
- It is the total expenditure on final goods and services in any given period
Formula for GNE?
GNE = C + I + G
C : personal consumption
I : investment
G : government expenditure
what is Gross domestic product (GDP) ?
- It is the value of all (intermediate and final goods) goods and services produced as output by firms
What is Gross national income ?
- It value of all income is paid to domestic entities (in close economy)
what measure you can find in a close economy ?
- GNE
- GDP
- GNI
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)
what is trade balances ?
- It is the differences between payments made for imports and payments received for exports
Formula for GDP (open economy)
GNE + TB = GDP
the total value of production in the economy
What is NFIA ?
- Net factor income from abroad :
It is the value of factor service export minus factor service
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
what is unilateral transfer ?
- They are considered non market transactions
such as Gifts : they are different kind of transaction
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
what is Current Account (CA) ?
- It is the combination of all international transactions I goods, service and income
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
- Capital transfer (gifts )
- 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 :
- Financial Flows :
- the effect of trade increase and decrease the assets and liabilities - 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 ?
No
Can FA be split into different types of transactions ?
- Into OSBA : transaction conducted by banks
- FA non-reserve : transactions conducted by everyone else
