note1 - National Income Accounting and the Balance of...

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National Income Accounting and the Balance of Payments Viktoria Hnatkovska week 1-2 1
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National Income Accounting: Review De&nition 1 GNP is the value of all &nal goods and services produced by country±s factors of production and sold on the market in a given period of time. De&nition 2 GDP measures the volume of production within the country±s borders. GNP = GDP + net receipts of factor income from abroad : There are 4 types of expenditure: C : Consumption = expenditure by domestic residents I : Investment = expenditure by &rms on plants ± equipment G : Government purchases = expenditure by governments on goods and services CA : Current account balance (exports minus imports) = net expenditure by foreigners on domestic goods and services 2
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U.S. GNP and Its Components 3
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Fundamental accounting identity Closed economy: Y = C + I + G where Y is GNP, C is private consumption, I is private investment, G is government spending. Open Y = C + I + G + X & M X & M denotes net exports (exports minus imports). De&ne CA = X & M to be current account. If X & M > 0 = ) surplus, X & M < 0 = ) de&cit. Rewrite equation above as Y & T = C + I + G & T + X & M Y & T & C = & ( T & G ) + I + X & M Y & T & C = S p and T & G = S g ; which gives S p + S g & I = X & M S p is private saving and S g is public saving. 4
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Let S = S p + S g be national savings for this economy is. Then the income identity becomes S & I = X & M S & I = CA Notes: ± In a closed economy national saving always equal investment: S = I: Closed economy&s wealth can increase only by accumulating new capital.
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This note was uploaded on 05/06/2010 for the course ECON Econ 365 taught by Professor Hnatkovska during the Spring '09 term at The University of British Columbia.

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note1 - National Income Accounting and the Balance of...

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