Download
1 / 5
50 likes | 264 Views
I. Review of Basic Macroeconomic Real Sector Definitions goods free goods economic goods wealth ~ stock income ~ flow consumer goods producer goods (capital goods) II. The Real Sector and Gross Domestic Product The real sector of the economy encompasses all economic goods and services.
E N D
I. Review of Basic Macroeconomic Real Sector Definitions • goods • free goods • economic goods • wealth ~ stock • income ~ flow • consumer goods • producer goods (capital goods) • II. The Real Sector and Gross Domestic Product • The real sector of the economy encompasses all economic goods and services. • The total market value of all final goods and services produced by a nation’s economy for a given period of time is known as gross national product (GNP). • Domestic or Total Output? Measuring the Financial Sector: The Flow of Funds Gross national product (GNP) • – foreign earnings • Gross domestic product (GDP)
Methods of measuring GDP • Gross domestic product may be measured by either: • 1.Summing total expenditures. • 2. Summing incomes paid and costs incurred in production. • GDP: The total of expenditures 1. Personal consumption expenditures 2. Gross private domestic investment 3. Net foreign investment 4. Government purchases of goods and services Insert 2.1 • GDP: The Total of Incomes to Factors of Production • labor, land, capital, entrepreneurs • 1. Compensation of employees • 2. Proprietors’ and rental income • 3. Corporate profits and inventory valuation adjustment • 4. Interest • These sum to national income. • 5. Other charges against gross domestic product Insert 2.2 & 2.3
III. Simple Flow of Funds Analysis • Flow of funds analysis enables market analysts to track the movement of savings through the economy. • Steps in flow of funds accounting • Partition economy into sectors sectors must represent economic units of similar behavior • Prepare sources and uses of funds statements measures intersectional changes in money levels • Insert 2.4 & 2.5 • Create a table or matrix the matrix shows net changes in levels and consists of all sectors of the economy • Insert 2.6
Some basic flow of funds relationships • investment + lending = borrowing + saving • aggregate savings = increased investment in real assets • total funds provided by financial institutions = total increases in cash balances held • increase in financial assets = increase in financial liabilities • IV. Credit Flows: Stocks vs. Flows • Focusing on specific categories can change the emphasis from category changes to sector flows (surplus / deficit). • Insert 2.7
V. The Federal Reserve Flow of Funds System • Quarterly data are divided into 23 economic sectors. Data can be aggregated in various ways to highlight particular financial instruments or flows between instruments. • Insert 2.8, 2.9, & 2.10 • Question: How can this data be useful in portfolio allocation questions, e.g. what is the effect of greater household mutual fund holdings? • VI. Summary • Savings has been defined. • Through flow of funds analysis we can trace the flow of money from net savers to borrowers. We can also track where the money came from and where it went to.
