Table 13-1: National income accounts for Agraria, an Open Economy (bushels of wheat) TABLE 13-1 National Income Accounts for Agraria, an Open Econom (bushels of wheat GNP Consumption Investment Government Exports -Imports (total output purchases 100 7 25 10 +10 20 a55 bushels of wheat+(0.5 bushel per gallon)x(40 gallons of milk) 0.5 bushel per gallon X 40 gallons of milk Copyright 2012 Pearson Education. All rights reserved 13-16
Copyright © 2012 Pearson Education. All rights reserved. 13-16 Table 13-1: National Income Accounts for Agraria, an Open Economy (bushels of wheat)
Saving and the current account National saving(s= national income(n that is not spent on consumption(C)or government purchases(G) s=(Y-C-7+(7-G) S= SP+ s9 Copyright 2012 Pearson Education. All rights reserve 13-17
Copyright © 2012 Pearson Education. All rights reserved. 13-17 Saving and the Current Account • National saving (S) = national income (Y) that is not spent on consumption (C) or government purchases (G). S = Y – C – G S = (Y – C – T) + (T – G) S = Sp + Sg
How Is the current account related to National Saving? CA=y-(C+了+G) =(y-C-G)-了 s -I current account national saving - investment current account net foreign investment a country that imports more than it exports has low national saving relative to investment Copyright 2012 Pearson Education. All rights reserved 13-18
Copyright © 2012 Pearson Education. All rights reserved. 13-18 How Is the Current Account Related to National Saving? CA = Y – (C + I + G ) = (Y – C – G ) – I = S – I current account = national saving – investment current account = net foreign investment • A country that imports more than it exports has low national saving relative to investment
How Is the current account related to National Saving?(cont) CAES-I o厂 I= S-CA Countries can finance investment either by saving or by acquiring foreign funds equal to the current account deficit a current account deficit implies a financial asset inflow or negative net foreign investment Whens>I, then Ca>0 so that net foreign investment and financial capital outflows for the domestic economy are positive Copyright 2012 Pearson Education. All rights reserved 13-19
Copyright © 2012 Pearson Education. All rights reserved. 13-19 How Is the Current Account Related to National Saving? (cont.) CA = S – I or I = S – CA • Countries can finance investment either by saving or by acquiring foreign funds equal to the current account deficit. – a current account deficit implies a financial asset inflow or negative net foreign investment. • When S > I, then CA > 0 so that net foreign investment and financial capital outflows for the domestic economy are positive
International Capital flows Emerging economies )Argentina x 10 Brazil X10°Chle x10° China AN 200020052010 200020052010 200020052010 200020052010 x 10 Colombia x 1 4 Egypt x fdong Kong SAR x 10. India 2 00020052010 200020052010 200020052010 200020052010 x 10 Indonesia x 10 Korea Financial Capital Flo FDI Flow Net Flow 200020052010200020052010200020052010 Copyright 2012 Pearson Education. All rights reserve 16
Copyright © 2012 Pearson Education. All rights reserved. 16 International Capital Flows: Emerging Economies