Chapter 16: National and International Accounts: Income, Wealth, and the Balance of Payments

National and International Accounts: Income,

Wealth, and the Balance
of Payments 16
1 Measuring
Macroeconomic
Activity: An
Overview
2 Income, Product,
and Expenditure
3 The Balance of
Payments
4 External Wealth
5 Conclusions

Prepared by:
Fernando Quijano
Dickinson State University

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 1 Measuring Macroeconomic Activity: An Overview

The Flow of Payments in an Open Economy:

Chapter 16: National and International Accounts: Income, Wealth, and the Balance of Payments

Incorporating the Balance of Payments Accounts

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 1 Measuring Macroeconomic Activity: An Overview
FIGURE 16-2
Chapter 16: National and International Accounts: Income, Wealth, and the Balance of Payments

The Open Economy Measurements

of national expenditure, product,
and income are recorded in the
national income and product
accounts, with the major categories
shown on the left.

Measurements of international
transactions are recorded in the
balance of payments accounts, with
the major categories shown on the
right.

The purple line shows the flow of

transactions within the home
economy.

The green lines show all cross-

border transactions.

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 2 Income, Product, and Expenditure
From GNE to GDP: Accounting for Trade in Goods
Chapter 16: National and International Accounts: Income, Wealth, and the Balance of Payments

and Services  
 
GDP
   I G
C   EX  IM  (16-1)
Gross Gross  finalAll exports, All imports, 
domestic
product
national        & intermedia
& intermediate final
  
te 
expenditure
GNE Trade balance
TB

If TB > 0, exports are greater than imports and we say a country has
a trade surplus.
If TB < 0, imports are greater than exports and we say a country has
a trade deficit.

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 2 Income, Product, and Expenditure
From GDP to GNI: Accounting for Trade in Factor
Chapter 16: National and International Accounts: Income, Wealth, and the Balance of Payments

Services
• Gross national income equals gross domestic product
(GDP) plus net factor income from abroad (NFIA).
GNI  C  I G  ( EX  IM )  ( EX FS  IM FS ) (16-2)
              
Gross nationalexpenditure Trade balance Net factor income from abroad
GNE TB NFIA
           
GDP

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 2 Income, Product, and Expenditure
From GNI to GNDI: Accounting for Transfers of Income
Chapter 16: National and International Accounts: Income, Wealth, and the Balance of Payments

Y   C  I  G   ( EX  IM )  ( EX FS  IM FS )  (UT  UT )
GNDI
                   
GNE Trade Net factor income
balance from abroad Net unilateral
(TB ) ( NFIA ) transfers
                 (NUT )
GNI

(16-3)

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 2 Income, Product, and Expenditure
What the National Economic Aggregates Tell Us
Chapter 16: National and International Accounts: Income, Wealth, and the Balance of Payments

• We can group the three cross-border terms into an

umbrella term that is called the current account, CA:
Y  C
 I G  {(EX  IM )  ( EX FS  IM FS )  (UT  UT )}
GNDI               
GNE
Trade Net factor income Net unilateral
balance from abroad transfers
(TB ) ( NFIA ) (NUT )
                
Current account
( CA )
(16-4)

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 2 Income, Product, and Expenditure
Understanding the Data for the National Economic
Chapter 16: National and International Accounts: Income, Wealth, and the Balance of Payments

Aggregates
TABLE 16-1

U.S. Economic Aggregates in 2009 The table shows the computation of GDP, GNI,
and GNDI in 2009 in billions of dollars using the components of gross national
expenditure, the trade balance, international income payments, and unilateral transfers.

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 2 Income, Product, and Expenditure
Some Recent Trends
Chapter 16: National and International Accounts: Income, Wealth, and the Balance of Payments

FIGURE 16-5

U.S. Gross National Expenditure and Its Components, 1990–2009 The figure shows
consumption (C), investment (I), and government purchases (G), in billions of
dollars.

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 2 Income, Product, and Expenditure
Some Recent Trends
Chapter 16: National and International Accounts: Income, Wealth, and the Balance of Payments

FIGURE 16-6

U.S. Current Accounts and Its Components, 1990–2009The figure shows the trade
balance (TB), net factor income from abroad (NFIA), and net unilateral transfers
(NUT), in billions of dollars.

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 2 Income, Product, and Expenditure
What the Current Account Tells Us
Chapter 16: National and International Accounts: Income, Wealth, and the Balance of Payments

Y  C  I  G  CA (16-5)

• This equation is the open-economy national income

identity. It tells us that the current account represents
the difference between national income Y (or GNDI) and
 national expenditure GNE (or C + I + G ). Hence:
gross
• GNDI > GNE if and only if CA is positive, or in
surplus.
• GNDI < GNE if and only if CA is negative, or in deficit.

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 2 Income, Product, and Expenditure
What the Current Account Tells Us
Chapter 16: National and International Accounts: Income, Wealth, and the Balance of Payments

• The current account is also the difference between

national saving (S = Y − C − G) and investment:

S
  I  CA (16-6)
Y C G

• This equation is called the current account identity

even though it is just a rearrangement of the national
income identity. Thus,
• S > I iff CA is positive, or in surplus.
• S < I iff CA is negative, or in deficit.

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 APPLICATION
Global Imbalances
Chapter 16: National and International Accounts: Income, Wealth, and the Balance of Payments

FIGURE 16-7 (1 of 2)

Saving, Investment, and Current Account Trends: Industrial Countries The charts
show saving, investment, and the current account as a percent of each subregion’s
GDP for four groups of advanced countries. The United States has seen both
saving and investment fall since 1980, but saving has fallen further than
investment, opening up a large current account deficit approaching 6% of GDP in
recent years.
Japan’s experience is the opposite: investment fell further than saving, opening up
a large current account surplus of about 3% to 5% of GDP.
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 APPLICATION
Global Imbalances
Chapter 16: National and International Accounts: Income, Wealth, and the Balance of Payments

FIGURE 16-7 (2 of 2)

Saving, Investment, and Current Account Trends: Industrial Countries (continued)

The Euro area has also seen saving and investment fall but has been closer to
balance overall.
Other advanced countries (e.g., non-Euro area EU countries, Canada, Australia,
etc.) have tended to run large current account deficits.

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 APPLICATION
Global Imbalances
Chapter 16: National and International Accounts: Income, Wealth, and the Balance of Payments

• Ahorro Privado

Sp  Y  T  C (16-7)

• Ahorro Publico

Sg  T  G (16-8)

• El ahorro nacional es la suma del ahorro Privado y
Publico

S Y  C  G  (Y  T  C )  (T  G )  S p  Sg
      
Private saving Government saving
(16-9)
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 APPLICATION
Global Imbalances
Chapter 16: National and International Accounts: Income, Wealth, and the Balance of Payments

FIGURE 16-8 (1 of 2)

Porque es inferior la
tasa de ahorro privado
en USA?

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 APPLICATION
Global Imbalances
Chapter 16: National and International Accounts: Income, Wealth, and the Balance of Payments

FIGURE 16-8 (2 of 2)

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 APPLICATION
Global Imbalances
Chapter 16: National and International Accounts: Income, Wealth, and the Balance of Payments

Déficits gemelos: déficit privado y déficit publico

CA  S p  Sg  I (16-10)

• La teoría de la Equivalencia Ricardiana, indica que una

caída
en el ahorro publico es completamente
compensado por un incremento en el ahorro privado.
• Sin embargo, la evidencia empírica muestra que el
ahorro privado no compensa completamente el déficit
del gobierno.

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 APPLICATION
Global Imbalances
Chapter 16: National and International Accounts: Income, Wealth, and the Balance of Payments

FIGURE 16-9 (1 of 3)

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 APPLICATION
Global Imbalances
Chapter 16: National and International Accounts: Income, Wealth, and the Balance of Payments

FIGURE 16-9 (2 of 3)

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 APPLICATION
Global Imbalances
Chapter 16: National and International Accounts: Income, Wealth, and the Balance of Payments

FIGURE 16-9 (3 of 3)

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 3 The Balance of Payments
Accounting for Asset Transactions: the Financial
Chapter 16: National and International Accounts: Income, Wealth, and the Balance of Payments

Account
• La cuenta financiera (FA) mide cuantos activos (fijos y
financieros) acumula o des-acumula un país mediante
transacciones internacionales

FA = EXA − IMA.

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 3 The Balance of Payments
Accounting for Asset Transactions: the Capital
Chapter 16: National and International Accounts: Income, Wealth, and the Balance of Payments

Account
• La cuenta de capital (KA) registra la acumulación (y
salida) de activos no financieros (patentes, franquicias,
Der. propiedad) y transferencias de capital (donaciones)
• Transferencias recibidas en el país local KAIN y
transferencias dadas por el país local KAOUT.

KA = KAIN − KAOUT

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 3 The Balance of Payments
Chapter 16: National and International Accounts: Income, Wealth, and the Balance of Payments

   CA
GNE     
FA KA  GNE
Resources available Extra resources available
to home country due to income to the home country
due to asset trades

• Si cancelamos GNE de ambos lados, obtenemos la

identidad de la balanza de pagos BOP :

CA
 + KA + FA = 0 (16-12)
Current account Capital account Financial account

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 3 The Balance of Payments
Chapter 16: National and International Accounts: Income, Wealth, and the Balance of Payments

• Componenetes de la BOP

CA  (EX  IM )  (EX FS  IM FS )  (UT UT )

KA  (KA  KA )
FA  (EX AH  IM AH )  (EX AF  IM AF ) (16-13)

• BOP=0 CA + FA + KA = 0


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 3 The Balance of Payments
Chapter 16: National and International Accounts: Income, Wealth, and the Balance of Payments

• Un país que tiene un superávit en la cuenta corriente

(CA>0) se denomina prestamista neto.
• Bajo BOP, sabemos que ese país debe tener un déficit
en sus cuentas de activos (KA<0)
• Como es un prestamista, compra activos (adquiere
IOUs “deudas” de deudores). Por ejemplo, China es un
gran prestamista neto.
• Un país que tiene un déficit en la cuenta corriente
(CA<0) se denomina deudor neto.
• Bajo BOP, sabemos que ese país debe tener un
superávit en sus cuentas de activos (KA>0)
• Por ejemplo USA es un gran deudor neto (emisor de
deuda IOUs)
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 3 The Balance of Payments
Some Recent Trends in the U.S. Balance of Payments
Chapter 16: National and International Accounts: Income, Wealth, and the Balance of Payments

FIGURE 16-10

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 4 External Wealth
The Level of External Wealth
Chapter 16: National and International Accounts: Income, Wealth, and the Balance of Payments

• El nivel de riqueza externa (W) es:

 ROW assets   Home assets  (16-14)

External    = owned by home   owned by ROW
    wealth
W                 
A L

• W también se conoce como la posición neta

internacional
si W > 0, el país local es un acreedor neto: los activos
externos exceden los pasivos externos
si W < 0, el país local es un deudor neto: los pasivos
externos exceden los activos externos

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 4 External Wealth
Changes in External Wealth
Chapter 16: National and International Accounts: Income, Wealth, and the Balance of Payments

 Change in  Financial  Capital gains on 

external wealth     account    external wealth 
                      (16-15)
W Net export of assets Valuation effects
= =
FA Capital gains minus capital losses

Dado que −FA = CA + KA, substituyendo esta identidad en

la ecuación (16-15):

 Change in   Current   Capital  Capital gains on 

external wealth   account   account    external wealth  (16-16)
                           
W CA KA Valuation effects
= = =
Unspent Net capital Capital gains
income transfers received minus capital losses

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