Chapter 12 National Income Accounting and the Balance of Payments
Chapter 12 ◼ National Income Accounting and the Balance of Payments
Chapter Organization ■ Introduction The National Income accounts a National Income Accounting for an Open Economy a The balance of payment accounts Summary
2 Chapter Organization ◼ Introduction ◼ The National Income Accounts ◼ National Income Accounting for an Open Economy ◼ The Balance of Payment Accounts ◼ Summary
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 >rade imbalances >>Money and the price level
3 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
Introduction 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 income and output a Balance of payments accounting Helps us keep track of both changes in a countrys indebtedness to foreigners and the fortunes of its export- and import-competing industries
4 ◼ 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 exportand import-competing industries Introduction
The National Income Accounts t 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
5 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
The National Income Accounts t 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
6 ◼ 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 The National Income Accounts
The National Income Accounts t America's $9.9 trillion 2000 gross national of dollars product can be broken NP 10000 down into the four components shown 9000 Source: Economic Indi- 8000 ators. U.S. Government Consumption Printing Office, April 7000 2001 6000 5000 4000 3000 Government 2000 Investment purchases 1000 1000 Current account
7 The National Income Accounts Figure 12-1: U.S. GNP and Its Components, 2000
The National Income Accounts t 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. a One persons spending is anothers income (i. e, total spending must equal total income)
8 ◼ 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). The National Income Accounts
The National Income Accounts t a Capital Depreciation, International Transfers, and Indirect Business Taxes Adjustments to the definition of gnP >>Depreciation of capital a It reduces the income of capital owners It must be subtracted from GNP (to get the net national product) Net unilateral transfers of income a They are part of a country's income but are not part of its product a They must be added to the net national product Indirect business taxes They are sales taxes a They must be subtracted from gnP
9 ◼ 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. The National Income Accounts
The National Income Accounts t 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
10 ◼ 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. The National Income Accounts
