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Samenvatting internationale monetaire economieChapter 2: Income accounting and the BOP
Module A: intro
• two main parts in Chapter
• national income accounting <<<
• BOP accounting
• national income identity: NI GNP
Module B: National income identity
2.1. National Income Accounts (p. 33)
• record the value of national income that results from production and expenditure
▪ national income is often defined to be the income earned by a nation’s
factors of production.
• we will analyse national income identity
• producers earn income from buyers who spend money on goods and services
• the amount of expenditure by buyers
= the amount of income for sellers
= the value of production
National Income Accounts: GNP
• Gross national product (GNP) is the value of all final goods and services produced
by a nation’s factors of production in a given time period.
• no intermediate goods (!); double counting
• factors of production = workers (labour services), physical capital (like
buildings and equipment), natural resources and others.
• the value of final goods and services produced by US-owned factors of
production are counted as US GNP
• no used goods (!)
• GNP is calculated by adding the value of expenditure on final goods and services
produced:
1. Consumption: expenditure by domestic consumers
2. Investment: expenditure by firms on buildings & equipment
3. Government purchases: expenditure by governments on goods and services
4. Current account balance (exports minus imports): net expenditure by
foreigners on domestic goods and services
Figure 2.1 U.S. GNP and Its Components
,America’s gross national product for the first quarter of 2016 can be broken down into the
four components shown.
Source: U.S. Department of Commerce, Bureau of Economic Analysis. The figure shows
2016:QI GNP and its components at an annual rate, seasonally adjusted.
? why useful to divide GNP
National Income Identity
• National Income must equal National Product
• ! only correct if GNP is adjusted
– depreciation (reduces income of capital owners)
NI = GNP - depreciation = NNP
– unilateral transfers (gifts from/to foreigners)
NI = GNP - depreciation + net transfers
– sales taxes
NI = GNP - depreciation + net transfers
- indirect business taxes
• ! distinction of little importance for macroeconomic analysis! => two terms are
used interchangeably
Difference between GNP and GDP
• GNP is value of all final goods and services produced by a country's factors of
production
• GDP is volume of production within a country's borders
• GNP = GDP - 'domestic' income earned by foreigners + 'foreign' income earned by
domestic residents
• GNP = GDP + net receipts of factor income from ROW= rest of world
• different criterion: ‘nationality’ vs. location
Takeaways
1. A country’s GNP is roughly equal to the income received by its factors of production.
2. In an open economy, GNP equals the sum of consumption, investment, government
purchases, and the current account.
3. GDP is equal to GNP minus net income from foreign countries for factors of
production. GDP measures the value of output produced within a country’s borders.
Module C : Breaking down GDP
, • “consumption has only grown relatively modestly, and investment scarcely at all, in
Germany and the rest of the core. Instead, core and periphery alike have relied on
international demand for their exports (see chart). Between 2011 and 2015 the euro
area’s trade surplus rose from just 0.1% of euro-zone GDP to 3.7%.”
• “Europe’s addiction to exports leaves it vulnerable to any deceleration in global
growth. Were China’s economy to slow more sharply, or America’s to return to
recession, Europe, too, would see growth wane.”
“After years of near-stagnation, private consumption is growing at about 2 per cent — a
rate Germany has not seen since the dotcom boom of the late 1990s.
For economists, the shift is significant. Germany has long relied on exports, which make
up almost 40 per cent of GDP, to drive growth. The wage restraint showed by German
workers helped underpin that by maintaining competitiveness. ...
There are signs that model could be changing. The slowdown in emerging markets has tamed
demand for German exports. As a result, companies are investing less but German domestic
demand is kicking in and taking up the slack, creating a more balanced economy.
“The [economic] upswing we’re seeing now is consumption-driven,” said Jörg Krämer, chief
economist at Commerzbank. “It’s a paradigm shift in the German growth model.”
, • incredible growth rates …
• ! - "China's economy is driven not by exports but by investment, which accounts for
over 40% of GDP".
• "since 2005, net exports have contributed more than 20% of growth”
• contribution of household consumption lower than in West
• in short: unbalanced!
• "In the longer term, China needs to rebalance its economy, by increasing
consumption.”
• "It is important to understand how distorted China's economy now is: in 2007,
personal consumption was just 35 per cent of GDP. Meanwhile, China was
investing 11 per cent of GDP in low-yielding foreign assets, via its current account
surplus. Remember how poor hundreds of millions of Chinese still are. Then consider
that the net transfer of resources abroad [will be explained later!; lvh] was equal to a
third of personal consumption”.
Michael Pettis of Peking University’s Guanghua School of Management: Chinese growth is ..
‘unbalanced’, … : it is highly dependent on investment as a source of demand and driver of
supply (see charts). It is, in a sense, the most ‘capitalist’ economy ever.
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