Transcript National Income Accounts and Balance of Payments Accounting

National Income Accounts and
Balance of Payments Accounting
Expenditure Measures

Absorption is the sum of purchases by
three sectors of the economy:
household, corporate, and government
sectors.


Current dollar absorption
PAA ≡ PCC + PII + PGG
Constant dollar absorption
A≡C+I+G
Absorption Deflator

Deflators are the ratio of current dollar
to constant dollar.
PA 

PA A
A
PC 
PC C
C
PI 
PI I
I
PG 
PGG
G
Absorption deflator is a weighted
average of different category deflators.
PA  PC  PI  PG
C
A
I
A
G
A
Categories

C- Personal Consumption
Expenditure




Consumer Durables
Consumer Non-Durables
Consumer Services
I – Gross Capital Formation


Change in Stocks - Inventories
Gross Fixed Capital Formation


Residential Investment
Non-Residential Investment


Structures
Machinery & Equipment

G – Government
Expenditure
Net Exports


Domestic goods can also be sold overseas,
while domestic absorption can also be
satisfied by imports.
The nominal trade balance is
PNXNX = PEXEX - PIMIM

The real trade balance is
NX = EX - IM
GDP

GDP goods produced domestically are equal
to those goods sold domestically less
domestic demand satisfied by imports plus
domestic goods.


PQQ = PCC + PII + PGG + PEXEX – PIMIM
Q = C + I + G + EX - IM
Domestic Income


Income from domestic residents (GNP) may come
from domestic or foreign sources. Also, income
generated from domestic sources (GDP) may go,
in part, to foreign owners, creditors, or workers.
Net Transfers (NT) is income from foreign sources
paid to domestic residents minus income from
domestic sources paid to foreign residents.
GNP = GDP + NT
Current Account



Current Account is Net Current funds earned
overseas.
Income may be earned overseas through
producing goods domestically and selling
goods abroad or playing a hand in producing
goods overseas (as a worker, entrepreneur,
or capitalist).
Current Account is NX + NT ≡ CA
Table 1. U.S. International Transactions
[Millions of dollars]
(Credits +; debits -)/1/
Current account
Exports of goods and services and income receipts
Exports of goods and services
Goods, balance of payments basis/2/
Services/3/
Transfers under U.S. military agency sales contracts/4/
Travel
Passenger fares
Other transportation
Royalties and license fees/5/
Other private services/5/
U.S. Government miscellaneous services
Income receipts
Income receipts on U.S.-owned assets abroad
Direct investment receipts
Other private receipts
U.S. Government receipts
Compensation of employees
Imports of goods and services and income payments
Imports of goods and services
Goods, balance of payments basis/2/
Services/3/
Direct defense expenditures
Travel
Passenger fares
Other transportation
Royalties and license fees/5/
Other private services/5/
U.S. Government miscellaneous services
Income payments
Income payments on foreign-owned assets in the United States
Direct investment payments
Other private payments
U.S. Government payments
Compensation of employees
Unilateral current transfers, net
U.S. Government grants/4/
U.S. Government pensions and other transfers
Private remittances and other transfers/6/
1998
-209557
1194803
933495
670416
263079
17405
71325
20098
25604
35626
92095
926
261308
258871
103963
151307
3601
2437
-1355917
-1098363
-917103
-181260
-12185
-56483
-19971
-30363
-11235
-48174
-2849
-257554
-250560
-38418
-127988
-84154
-6994
-48443
-13270
-4305
-30868
1999
-296822
1259665
966443
683965
282478
15928
74801
19785
26916
39670
104493
885
293222
290474
131626
155651
3197
2748
-1509732
-1229695
-1029980
-199715
-13335
-58963
-21315
-34139
-13107
-56035
-2821
-280037
-272082
-53437
-138120
-80525
-7955
-46755
-13774
-4406
-28575
2000
-413443
1421429
1070980
771994
298986
13790
82400
20687
29803
43233
108287
786
350449
347614
151839
191929
3846
2835
-1779188
-1449324
-1224408
-224916
-13473
-64705
-24274
-41425
-16468
-61688
-2883
-329864
-322345
-56910
-180918
-84517
-7519
-55684
-16714
-4705
-34265
2001
-385701
1293345
1006653
718712
287941
12539
71893
17926
28442
40696
115614
831
286692
283761
128665
151535
3561
2931
-1632465
-1369345
-1145900
-223445
-14835
-60200
-22633
-38682
-16538
-67675
-2882
-263120
-255034
-12783
-159825
-82426
-8086
-46581
-11517
-5798
-29266
2002
-473944
1242739
975940
681833
294107
11943
66728
17046
29195
44219
124181
795
266799
263861
147291
113267
3303
2938
-1657301
-1397675
-1164728
-232947
-19101
-58044
-19969
-38407
-19235
-75271
-2920
-259626
-251246
-46460
-128672
-76114
-8380
-59382
-17097
-5125
-37160
2003
-530668
1314888
1020503
713122
307381
12491
64509
15693
31833
48227
133818
810
294385
291354
187522
99135
4697
3031
-1778117
-1517011
-1260674
-256337
-25117
-56613
-20957
-44768
-20049
-85829
-3004
-261106
-252573
-68657
-111874
-72042
-8533
-67439
-21865
-5341
-40233
Worsening Current Account
US Current Accounts
100000
Million US
-200000
2003
1997
1991
1985
1979
1973
1967
-100000
1961
0
Net Exports
NT
-300000
-400000
-500000
-600000
Years
National Savings





Savings = private sector savings + public
sector savings.
Define TAX = Net Taxes = Tax Revenues less
transfer payments (social welfare, etc.).
Real Public Savings = T – G ≡ SG
Private Sector Savings is Disposable Income
minus Consumption
Real Private Saving = Q +NT – T – C = SP
Savings




Private Savings can occur through household
saving or business saving
Household savings occur when households earn
income (as wages, interest or dividends) that they
do not consume.
Business Investment occurs when firms keep
profits instead of paying them as dividends.
Prevalence of two types of savings depends on
importance of equity finance in the financial system.
Business savings is a bigger source of funds in NA
than Europe or Asia.
Capital & Financial Account



There are two ways to finance domestic
investment
Capital & Financial Account represents
net capital inflows which finance
domestic investment net of savings.
Real Capital & Financial Account = I - S
C & FAccount = -Current Account

As an accounting identity,


I–S =
=
=
=
I – (SG + SP)
I – (T – G + Q +NT – C – T)
C + I + G – Q – NT
-NX - NT
Intuitively, if you earn more income overseas
than you pay out, you can acquire foreign
assets.
Capital Account


Capital & Financial Account includes both Capital
Account (direct transfers of capital, often through
debt forgiveness or default) and Financial Account
which represents acquisition or Sale of Financial
assets.
Financial Account divided into 5 categories
1.
2.
3.
4.
5.
Reserve Asset – Official holdings of foreign reserves
Bank Lending
Portfolio Investment – Stocks & Bonds
Direct Investmnet- Ownership stakes in equity
Other
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
1998
1999
Capital and financial account
Capital account
Capital account transactions, net
-740
-4843
Financial account
U.S.-owned assets abroad, net (increase/financial outflow (-)) -347829
-503640
U.S. official reserve assets, net
-6783
8747
Gold/7/
.....
.....
Special drawing rights
-147
10
Reserve position in the International Monetary Fund
-5119
5484
Foreign currencies
-1517
3253
U.S. Government assets, other than official reserve assets, net
-422
2750
U.S. credits and other long-term assets
-4678
-6175
Repayments on U.S. credits and other long-term assets/8/
4111
9559
U.S. foreign currency holdings and U.S. short-term assets, net
145
-634
U.S. private assets, net
-340624
-515137
Direct investment
-142644
-224934
Foreign securities
-124204
-116236
U.S. claims on unaffiliated foreigners reported by U.S. nonbanking concerns
-38204
-97704
U.S. claims reported by U.S. banks, not included elsewhere
-35572
-76263
Foreign-owned assets in the United States, net (increase/financial
423569
inflow (+)) 740210
Foreign official assets in the United States, net
-19903
43543
U.S. Government securities
-3589
32527
U.S. Treasury securities/9/
-9921
12177
Other/10/
6332
20350
Other U.S. Government liabilities/11/
-3326
-2863
U.S. liabilities reported by U.S. banks, not included elsewhere
-9501
12964
Other foreign official assets/12/
-3487
915
Other foreign assets in the United States, net
443472
696667
Direct investment
179045
289444
U.S. Treasury securities
28581
-44497
U.S. securities other than U.S. Treasury securities
156315
298834
U.S. currency
16622
22407
U.S. liabilities to unaffiliated foreigners reported by U.S. nonbanking23140
concerns
76247
U.S. liabilities reported by U.S. banks, not included elsewhere
39769
54232
2000
2001
2002
2003
-809
-1083
-1260
-3079
-569798
-290
.....
-722
2308
-1876
-941
-5182
4265
-24
-568567
-159212
-121908
-138790
-148657
1046896
42758
35710
-5199
40909
-1825
5746
3127
1004138
321274
-69983
459889
5315
170672
116971
-366768
-4911
.....
-630
-3600
-681
-486
-4431
3873
72
-361371
-142349
-84644
-8520
-125858
782859
28059
54620
33700
20920
-2309
-29978
5726
754800
167021
-14378
393885
23783
66110
118379
-198014
-3681
.....
-475
-2632
-574
345
-5251
5701
-105
-194678
-134835
15889
-45425
-30307
768246
113990
89016
60466
28550
137
21221
3616
654256
72411
100432
285500
21513
77990
96410
-283414
1523
.....
601
1494
-572
537
-7279
7981
-165
-285474
-173799
-72337
-28932
-10406
829173
248573
194568
169685
24883
-564
49420
5149
580600
39890
113432
250981
16640
84014
75643