365 Topic5 - ECO365 Topic 5 National Income Accounts and...

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National Income Accounts and Balance of Payments ECO365 Topic 5
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Overview Our goal is to study how a shock in one country affects economic activity in other countries. But in order to do that, we should be able to develop a measure of economic activity understand how countries interact with each other In this topic, we shall try to understand how trade and payments are made in the world economy, and in turn, how that affects the income of individual countries. 2 ECO365
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Overview 1. Measuring Macroeconomic Activity 2. National Accounts: Product, Expenditure, and Income 3. Balance of Payment Accounts 3 ECO365
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Closed Economy : Measures Gross National Expenditure (GNE) is total expenditure on final goods and services sold on the market in a given time period. Gross Domestic Product (GDP) is the total value- added by all firms in the economy. Gross National Income (GNI) is the total payment to all the factors of production like labour, capital and land. In a closed economy, these measures are the same. 4 ECO365
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Closed Economy : Measures GNE is divided into the following : Consumption (by private domestic households) Investment (by private domestic firms) Government purchase (by the national government) For designing sound economic policy , it is important to understand which component of GNE is driving booms and recessions. 5 ECO365
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Closed Economy : Measures 6 ECO365 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% U.S. Canada Bangladesh Ethiopia Investment Government expenditure Consumption
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Open Economy : Measures Trade Balance (TB) Export of goods and services Import of goods and services Net factor income from abroad (NFIA) Export of factor services Import of factor services Net unilateral transfers (NUT) Gifts to and from foreigners 7 ECO365
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In an open economy, GNE and GDP differ because of trade in goods and services.
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365 Topic5 - ECO365 Topic 5 National Income Accounts and...

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