WEALTH, DISPOSABLE INCOME AND CONSUMPTION - Economics

non-residential structures, machinery and equipment, consumer durables,
inventories and land. Financial assets are defined as the sum of currency
and deposits, corporate bonds, life insurance and pensions, foreign investments
and equity. The principal liabilities of persons and unincorporated
businesses are consumer and mortgage loans and other loans.
To understand the construction of net assets, it is important to distinguish
between the components of A and their sum. This point is well
illustrated by the treatment of deposits and government debt. Deposits are
a component of A,
which implies that this variable includes inside money.
This, however, should not be the case, since inside money should be offset
by consumer and business loans. Consumer and business loans are a liability
to consumers, either directly or indirectly through their equity holdings
in firms. In the case of government debt, A
includes the government debt
held directly by persons and unincorporated businesses, and then subtracts
the total outstanding stock of domestically held government debt. As
a result, both the government debt held directly by households and the
government debt held by firms (and thus indirectly by households through
their equity holdings) net out.
In the case of the three largest components of non-human wealth,
adjustments are made to improve the quality of the market valuation of
these assets. Equity in the national balance sheet accounts is measured at
“current” value, which is defined as the sum of book value and cumulated
retained earnings. To obtain a market-value measure, the current value of
equity reported in the national balance sheet accounts is replaced with a
measure of the book value of equity that is scaled by the growth rate of the
TSE 300 composite stock price index. Bonds are reported in the national
balance sheet accounts at book value. In the case of treasury bills, this is not
a serious problem, since book and market values do not differ substantially
for these short-term bonds. In the case of federal, provincial and municipal
bonds with a longer term to maturity, the book value series reported in the
national balance sheet accounts is replaced with a market value series
which is constructed by multiplying the original book value series by a
market price index that is constructed using Rose and Selody’s (1985)
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