Topic 4: National Income Accounting and Balance of Payments

GDP in closed economy

total value of final output or income produced in a country’s borders

does not worry about which country owns the factors of production

US company producing elsewhere not counted in US GDP

GNP in closed economy

value of all final input or income produced by a country’s factors of production

output produced in US using foreign owned capital not count in US GDP but production takes place abroad using US capital would count in US GDP

closed economy national income identity

Y = C + I + G

GNP = GDP in closed economy

Two types of investments

fixed capital: machines, buildings

inventories: output made but not consumed yet

savings in closed economy

output not consumed by household or government

S = I

current accounr

sales of g/s between two countires

transfer beween countries

profits from FDI

income earned on assets held aborad

export is credit, import is debit

financial account

purchase/sale of financial assets

factory, equity, loan, pruchasing debt, official reserve transactions

capital account

transferring wealth across countires

primarily non market activities

ex: debt forfivenmenss

financial account =

current + capital