2. 1 Section III overview From international Micro economy to open-Macro economy About macro economy target : price, growth, employment, and balance of payments. The core property of open-Macro economic is how an economy can get the equilibrium of internal- and external 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 Saving Trade imbalances 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 in ’ debtedness to foreigners and the fortunes of its export- and import-competing industries.it also show the connection between foreign transactions and national money supplies. Introduction

6. 5 12.1 The National Income Accounts Gross national product (GNP) 国民生 产总值 (P209) 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

8. 7 The National Income Accounts2000,2003

9. 8 u.s. GDP 2008

10. 9 U.S. GDP

11. 10 中国 GDP （支出法， 2006 ） GDPC Government consumption Gross fixed capital formation Increase in stocks Net exports of goods and services Statistical discrepancy h 19891699.2881.3235.2441.9191.3-18.6-31.9 19901866.8945.1264.0482.8191.951.0-68.0 19912178.21073.1336.1607.0179.861.8-79.6 19922692.31300.0420.3851.4157.327.6-64.2 19933533.41641.2548.81330.9240.9-68.0-160.4 19944819.82184.4739.81731.3302.863.4-202.0 19956079.42837.0837.92088.5458.599.9-242.3 19967117.73395.6996.42404.8473.7145.9-298.7 19977897.33692.21121.92596.5400.3355.0-268.5 19988440.23922.91235.92856.9274.5362.9-212.9 19998967.74192.01371.73052.7242.4237.6-128.7 20009921.54585.51566.13384.499.8239.046.6 200110965.54921.31766.53775.5201.5232.568.3 200212033.35257.11912.04363.2193.3309.4-1.8 200313582.35683.42061.55349.1247.2298.6-57.6 200415987.86383.42319.96511.8405.1407.9-40.2 200518386.87090.62601.27746.4209.51022.3-283.3 200620940.78015.73016.79028.2381.71607.6-1109.1

12. 11 中国 GDP （支出法， 1989-2006 ）

13. 12 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

14. 13 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

15. 14 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

16. 15 12.2 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

17. 16 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

18. 17 China`s real GDP and components

19. 18 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

20. 19 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. National Income Accounting for an Open Economy

21. 20 Figure 12-2: The U.S. Current Account and Net Foreign Wealth Position, 1977-2003

22. 21

23. 22 US Current Account As a Percentage of GDP(1980-2006)

24. 23 美国经常项目余额（ 1980-2006 ）

25. 24 China Current Account and Financial Account As a Percentage of GDP(1982-2007)

26. 25 中国经常项目余额 (1982-2006) 数据来源： WWW.IMF.ORG

27. 26

28. 27

29. 28 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

30. 29 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

31. 30 Inverse Relationship Between Public Saving and Current Account?

32. 31 财政赤字与经常项目 ( 中国数据 1990-2006)

33. 32 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(-).

34. 规则一 资产增加 —— 记借方 资产减少 —— 记贷方 规则二 负债增加 —— 记贷方 负债减少 —— 记借方 规则三 资金来源 —— 记贷方 资金运用 —— 记借方

35. 34 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

36. 35 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

37. 36 2)During your travels in France you pay $200 for a fine dinner at the Restaurant de 1 ’ Escargot d ’ Or.Lacking cash,you place the charge on your Visa credit card.

38. 37 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

39. 38 U.S. banks forgive $5000 in debt owed to them by the government of the imaginary country of Bygonia.

40. 39 一级账户二级账户三级账户借方（ - ） 本国支出外汇 贷方（ + ） 本国收入外汇 差额 一、经常账户贸易收支出口 进口 1000-1000 服务出口 进口 200 -200 收益职工报酬 经常转移 经常账户合计 1200-1200 二、资本与金融账 户 资本账户 5000-5000 金融账户 951000+200+95 +5000 6200 资本与金融账户合 计 509562951200 三、储备资产 四、错误与遗漏 总计 6295 0

41. 案 例案 例 太平洋中有一个岛国下沙尼亚，一年中发 生了 6 笔对外经济交易

42. （ 1 ） 一下沙尼亚商人出口 200 万美元的椰子油到美国， 将收到的货款存入下沙尼亚在美国的银行账户

43. （ 2 ）一下沙尼亚居民到外国旅游花销 30 万美元， 这笔费用从该居民的海外存款中扣除

44. （ 3 ） 外商以价值 1000 万美元的设备投入下沙尼亚，兴办 合资企业。

45. （ 4 ） 下沙尼亚政府动用外汇库存 40 万美元向外国提供 无偿援助，另提供相当于 60 万美元的粮食药品援 助。

46. 45 （ 5 ） 下沙尼亚某企业在海外投资所得利润 150 万美元。其中 75 万美元用于当地的再投 资，， 50 万美元购买当地的商品运回国 内， 25 万美元调回国内结售给政府以换 取本国货币

47. 46 （6）（6） 下沙尼亚居民动用其在海外存款 40 万美元， 用于购买外国某公司股票

48. 47 下沙尼亚国际收支平衡表年度记账表 一级账户二级账户三级账户借方（ - ） 本国支出外汇 贷方（ + ） 本国收入外汇 差额 一、经常账户贸易收支出口 100 ＋ 60 160 进口 1000 ＋ 50 ＋ 30 -1080 1080-920 收益职工报酬 150 经常转移 100 － 100 经常账户合计 1180310 － 870 二、资本与金融账 户 100 ＋ 75 ＋ 40 ＝ 215 30 ＋ 1000 ＋ 40 ＝ 1070 资本与金融账户合 计 855 三、储备资产 254015 四、错误与遗漏 总计 1420 0

49. 48 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) The Balance of Payments Accounts

50. 49 The Balance of Payments Accounts Table 12-2: U.S. Balance of Payments Accounts for 2000 (billions of dollars)

51. 50 The Balance of Payments Accounts Table 12-2: Continued

52. 51 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

53. 52 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

54. 53

55. 54 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

56. 中国国际收支错误与遗漏账户变动概况

57. 56 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

58. 57 图 中国对外收支不平衡的扩大与外汇储备的增加

59. 58 中国案例 : 外汇储备如何运用 中国案例 : 外汇储备如何运用 ? TABLESTUBSDRsReserve Position in the FundForeign ExchangeGold (National Valuation) 198092.191.2262.571.000 1981275.0.4783.516.000 1982214.0.11135.491.000 1983335.176.14476.464.000 1984406.255.16705435.000 1985483.332.11913.486.000 1986569.370.10514.541.000 1987640.429.15236.629.000 1988586.407.17548.594.000 1989540.398.17022.587.000 1990562.430.28594.623.000 1991577.433.42664.634.000 1992419.758.19443610.000 1993484.704.21199.612.440 1994539.755.51620.645.570 1995582.1216.73579.659.570 1996614.1396.105029.636.630 1997602.2270.139890.600.940 1998676.3553.144959.623.830 1999741.2312.154675.607.950 2000798.1905.165574.577.780 2001851.2590.212165.3093.000 2002998.3723.286407.4074.000 20031102.3798.403251.4074.000 20041247.3320.609932.4074.000 20051251.1391.818872.4074.000 20061068.1081.1066340.4074.000

60. 59 Official settlements balance (balance of payments)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. 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

61. 60 Trade Balance Current Account Balance Basic Balance The official settlement balance Overall Balance

62. 61 Relative Topics Deficit and Surplus why? Effect? How?

63. 62 Relative Theories Price-specie-flow mechanism （ Charpter18) The elasticities approach （ Charpter16) Multiplier Approach The absorption approach Multiplier Approach The monetary approach （ Charpter17)

64. 63 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

65. 64 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.

66. 65 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.

67. 66 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.

68. 67 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

69. 68 problem P321, 3