2. 1 Section III overview  From international Micro economy to open-Macro economy  About macro economy target : price, growth, employment, balance of payments, and Just distribution.  The core property of open-Macro economic is how an economy can get the internal- and external equilibrium  What should we learn from section III?_ an integrated model of exchange rate and output determination  This section comprises of 6 chapters, namely 12- 17

3. 2 Chapter 12 National Income Accounting and the Balance of Payments  Introduction  The National Income Accounts  National Income Accounting for an Open Economy  The Balance of Payment Accounts  Summary

4. 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  Trade imbalances  Saving  Money and the price level

5. 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 export- and import-competing industries Introduction

6. 5 The National Income Accounts  Gross national product (GNP) 国民生产 总值  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.  Real and nominal GNP with GNP price inflator

7. 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

8. 7 The National Income Accounts2000

9. 8 U.S. GNP and Its Components, 2003

10. 9 China`s real GDP and components

11. 10  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

12. 11  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

13. 12  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

14. 13 National Income Accounting for an Open Economy  Consumption  The portion of GNP purchased by the private sector to fulfill current wants  Investment  The part of output used by private firms to produce future output  Government Purchases  Any goods and services purchased by federal, state, or local governments

15. 14  The National Income Identity for an Open Economy  It is the sum of domestic and foreign expenditure on the goods and services produced by domestic factors of production: Y = C + I + G + EX – IM (12-1) where:  Y is GNP  C is consumption  I is investment  G is government purchases  EX is exports  IM is imports  In a closed economy, EX = IM = 0.The National Income AccountsThe National Income Accounts National Income Accounting for an Open Economy

16. 15 China`s real GDP and components

17. 16  The Current Account and Foreign Indebtedness  Current account (CA) balance  The difference between exports of goods and services and imports of goods and services (CA = EX – IM)  A country has a CA surplus when its CA > 0.  A country has a CA deficit when its CA < 0.  CA measures the size and direction of international borrowing.  A country ’ s current account balance equals the change in its net foreign wealth. National Income Accounting for an Open Economy

18. 17  CA balance is equal to the difference between national income and domestic residents ’ spending: Y – (C+ I + G) = CA  CA balance is goods production less domestic demand.  CA balance is the excess supply of domestic financing.  Example: U.S. CA deficit P. 297 National Income Accounting for an Open Economy

19. 18 Figure 12-2: The U.S. Current Account and Net Foreign Wealth Position, 1977-2003

20. 19 US Current Account As a Percentage of GDP(1960-2004)

21. 20 美国经常项目余额（ 1960-2004 ）

22. 21

23. 22 中国经常项目余额 (1984-2004) 数据来源：中国国际收支表 1982-2004

24. 23  Saving and the Current Account  National saving (S)  The portion of output, Y, that is not devoted to household consumption, C, or government purchases, G.  It always equals investment in a closed economy.  A closed economy can save only by building up its capital stock (S = I).  An open economy can save either by building up its capital stock or by acquiring foreign wealth (S = I + CA).  A country ’ s CA surplus is referred to as its net foreign investment. National Income Accounting for an Open Economy

25. 24  Private and Government Saving  Private saving (S p )  The part of disposable income that is saved rather than consumed S p = I + CA – S g = I + CA – (T – G) = I + CA + (G – T) (12-2)  T is the government's “ income ” (its net tax revenue)  S g is government savings (T-G)  Government budget deficit (G – T)  It measures the extent to which the government is borrowing to finance its expenditures. National Income Accounting for an Open Economy

26. 25 Inverse Relationship Between Public Saving and Current Account?

27. 26 中国国内储蓄、投资与外国资本流入（ 1984-2004 ） 外国资本流入数据来源于中国国际收支表，外国资本表示 FDI 、银行贷款及、证券 投资及短期资金之和，数据按当年汇率水平转换成人民币表示。国内储蓄、投资 （指固定资本形成）数来源于国际金融统计。

28. 27 财政赤字与经常项目 ( 中国数据 1989-2004) 数据来源 : 《中国统计年鉴》 2005

29. 28

30. 29

31. 30 The Balance of Payments Accounts  A country ’ s balance of payments is a summary statement in which all the transactions of the residents of this country with the residents of all others are recorded during a particular period of time  Every international transaction automatically enters the balance of payments twice: once as a credit (+) and once as a debit (-)_ Double – entry  The rules of entry : Any transaction which induce the increase of foreign exchange supply and debt, the decrease of claim enters credit(+) ; Any transaction which induce the increase of demand for foreign exchange and claim, the decrease of debt enters debit(-).

32. 31  Three types of international transactions are recorded in the balance of payments:  CA shows the transaction of real economy, namely: Exports or imports of goods or services, income and unilateral transfers of goods or services  Financial account shows up the international settlements and transactions of financial assets; Any transaction of international financial assets with central bank enters the international reserve account  Unilateral transfers of wealth between countries are recorded in the capital account, when they are involved in the transfers of financial assets; They are recorded in the CA, when they are involved in the transfers of goods or service The Balance of Payments Accounts

33. 32  Examples of Paired Transactions  A U.S. citizen buys a $1000 typewriter from an Italian company, and the Italian company deposits the $1000 in its account at Citibank in New York.  That is, the U.S. trades assets for goods.  This transaction creates the following two offsetting entries in the U.S. balance of payments:  It enters the U.S. CA with a negative sign (-$1000). (induces the increase of demand for foreign exchange)  It shows up as a $1000 credit in the U.S. financial account. (induces the increase of debt to nonresidents) The Balance of Payments Accounts

34. 33  一中国外贸公司进口货物，价值 100 万美圆，货到 后三个月付款  一旅游公司组织新、马、泰游，向对方支付 10 万美 圆  我国在海啸灾害中向受灾国捐赠 2 亿美圆，其中 1 亿 为物资  松下公司在杭州扩大投资 2000 万美圆， 1 千万为进 口设备， 1 千万为现金  我国向世界银行借款 1 亿美圆  中国银行卖给中央银行一亿美圆 balance charter.doc balance charter.doc 国际收支记账法则

35. 34  A U.S. citizen buys a $95 newly issued share of stock in the United Kingdom oil giant British Petroleum (BP) by using a check drawn on his stockbroker money market account. BP deposits the $95 in its own U.S. bank account at Second Bank of Chicago.  That is, the U.S. trades assets for assets.  This transaction creates the following two offsetting entries in the U.S. balance of payments:  It enters the U.S. financial account with a negative sign (- $95).  It shows up as a $95 credit in the U.S. financial account. The Balance of Payments Accounts

36. 35  The Fundamental Balance of Payments Identity  Any international transaction automatically gives rise to two offsetting entries in the balance of payments resulting in a fundamental identity: Current account + financial account + capital account = 0 (12-3)20042004 The Balance of Payments Accounts

37. 36 The Balance of Payments Accounts Table 12-2: U.S. Balance of Payments Accounts for 2000 (billions of dollars)

38. 37 The Balance of Payments Accounts Table 12-2: Continued

39. 38  The Current Account, Once Again  The balance of payments accounts divide exports and imports into three categories:  Merchandise trade  Exports or imports of goods  Services  Payments for legal assistance, tourists ’ expenditures, and shipping fees  Income  International interest and dividend payments and the earnings of domestically owned firms operating abroad The Balance of Payments Accounts

40. 39  The Capital Account  It records asset transfers and tends to be small for the United States.  The Financial Account  It measures the difference between sales of assets to foreigners and purchases of assets located abroad.  Financial inflow (capital inflow)  A loan from the foreigners with a promise that they will be repaid  Financial outflow (capital outflow)  A transaction involving the purchase of an asset from foreigners The Balance of Payments Accounts

41. 40  The Statistical Discrepancy  Data associated with a given transaction may come from different sources that differ in coverage, accuracy, and timing.  This makes the balance of payments accounts seldom balance in practice.  Account keepers force the two sides to balance by adding to the accounts a statistical discrepancy.  It is very difficult to allocate this discrepancy among the current, capital, and financial accounts. The Balance of Payments Accounts

42. 41  Official Reserve Transactions  Central bank  The institution responsible for managing the supply of money  Official international reserves  Foreign assets held by central banks as a cushion against national economic misfortune  Official foreign exchange intervention  Central banks often buy or sell international reserves in private asset markets to affect macroeconomic conditions in their economies. The Balance of Payments Accounts

43. 42  Official settlements balance (balance of payments)  The book-keeping offset to the balance of official reserve transactions  It is the sum of the current account balance, the capital account balance, the nonreserve portion of the financial account balance, and the statistical discrepancy.  Example: The U.S. balance of payments in 2000 was -$35.6 billion, that is, the balance of official reserve transactions with its sign reversed.balance charter.docbalance charter.doc  A country with a negative balance of payments may signal that it is running down its international reserve assets or incurring debts to foreign monetary authorities. The Balance of Payments Accounts

44. 43  Case Study: Is the United States the World ’ s Biggest Debtor?  At the end of 1999, the United States had a negative net foreign wealth position far greater than that of any other single country.  The United States is the world ’ s biggest debtor.  However, the United States has the world ’ s largest GNP. The Balance of Payments Accounts

45. 44 图 中国对外收支不平衡的扩大与外汇 储备的增加 

46. 45 中国案例 : 外汇储备如何运用 中国案例 : 外汇储备如何运用 ? 

47. 46 Summary  A country ’ s GNP is equal to the income received by its factors of production.  GDP is equal to GNP less net receipts of factor income from abroad, measures the output produced within a country ’ s territorial borders.  In a closed economy, GNP must be consumed, invested, or purchased by the government.  In an open economy, GNP equals the sum of consumption, investment, government purchases, and net exports of goods and services.

48. 47 Summary  The capital account records asset transfers and tends to be small in the United States.  Any current account deficit must be matched by an equal surplus in the other two accounts of the balance of payments, and any current account surplus by a deficit somewhere else.  International asset transactions carried out by central banks are included in the financial account.

49. 48 Summary  All transactions between a country and the rest of the world are recorded in its balance of payments accounts.  The current account equals the country ’ s net lending to foreigners.  National saving equals domestic investment plus the current account.  Transactions involving goods and services appear in the current account of the balance of payments, while international sales or purchases of assets appear in the financial account.

50. 49 Readings  王月溪 “ 解读中国国际收支平衡表：结构特 征、形成动因、调整方向及政策建议 ” 《管 理世界》 2003 年 4 期  方文 “ 对国际收支危机传染的比较研究 ” 《世 界经济》 2000 年 6 期  王一萱 “ 资本项目国际收支危机与东南亚金 融危机 ” 《国际金融研究》 2001 年 10 期  杨柳勇 “ 中国国际收支的超前结构：特征、 形成原因、变动趋势和调整方向 ” 《世界经济》 2002 年 11 期