International macroe.. - Free

1.2. NATIONAL ACCOUNTING RELATIONS 17EX. This can be stated equivalently as the sum of domestic aggregateexpenditures or absorption and net exportsY = A +(EX − IM). (1.18)National income (GNP) is the sum of gross domestic product and netfactor receipts from abroadSubstituting (1.18) into (1.19) yieldsQ = Y + R. (1.19)Q = A + (EX− IM) + R| {z }Current Account(1.20)A country uses the excess of national income over absorption to Þnancean accumulation of claims against the rest of the world. This is nationalsaving and called the balance on current account. A country with acurrent account surplus is accumulating claims on the rest of the world.Thus rearranging (1.20) giveswhich we summarize byQ − A = ∆(NFA)= (EX − IM)+R= Q − (C + I + G)= [(Q − T ) − C] − I +(T − G)= (S − I)+(T − G),∆(NFA) = EX − IM + R =[S − I]+[T − G] =Q − A. (1.21)The change in the country’s net foreign asset position ∆NFA in (1.21)is the nation’s accumulation of claims against the foreign sector andincludes official (central bank) as well as private capital transactions.The distinction between private and official changes in net foreign assetsis developed further below.Although (1.21) is an accounting identity and not atheory,itcanbe used for ‘back of the envelope’ analyses of current account problems.For example, if the home country experiences a current account