Exam 2 part 3 Flashcards
Financial Accounts records all..
“movements” of assets — i.e., changes of national ownership. FA = EXA – IMA
FA < 0 Country accumulates assets.
FA > 0 Country decumulates assets.
Financial Account (FA)
Records all transactions in assets.
EXA: Export of assets = total value of financial assets received by ROW, from the home country.
IMA: Import of assets = total value of financial assets received from ROW, by the home country.
Balance of Payments formula
BOP=CA+FA=0
This means that if CA (Capital Account (assets)) is in deficit (CA<0), FA (financial account (assets)) must be in surplus (FA>0) to equal 0
What are the three accounts for the balance of payments accounts
-Current account (goods and services)
-Financial account (assets)
Often called the “Capital Account”
-Capital account (assets)
Misnomer. Relatively small part of the picture.
Mostly capital transfers (debt forgiveness, gifts).
Plus some minor items: acquisition/disposal of non-financial, non-produced assets (patents, copyrights, franchises).
Balance of Payments Accounts
Record international transactions involving goods and services (current account) and financial assets (financial account and capital account).
Income Approach
GNI = GDP + NFIA
Payments to factors of production
GNI = value of all payments earned by factor residents in the economy.
Product Approach
GDP = GNE + TB
Supply of goods and services
GDP = value of all goods and services produced by firms, less intermediate goods purchased.
Expenditure Approach
GNE = C + I + G
Demand for goods and services
GNE = total expenditure on all final goods and services.
National Accounts
-accounting practices that measure the economic activity of a nation (GDP, GNP, consumption, etc.)
-Current accounts (production, income, expenditure), capital accounts (net accumulation of non-financial assets), and financial accounts (accumulation of financial assets and liabilities)
Paradox of Thrift
-S doesn’t equal I, therefore not a contributor to aggregate demand.
-Higher S, ceteris paribus, means lower AD.
-Marginal propensity to consume
Animal Spirits
Negative sentiment causes investors to lose their nerve
Underconsumption
cycles causes by a lack of spending
