What happened to lkonomia’s net foreign assets during 2016? Did it acquire or lose foreign assets during the year? How much income did foreign factors of production earn in lkonomia during 2016?
Homework
1. Discovering Data In this question you will GDP per Person GNI per Person study the official macroeconomic statistics reported in your country. These can be found by searching the web for “National Accounts” and your country’s name. In the United States, these can be found at http://www.bea.gov and by accessing the National Income and Product Account (NIPA) tables 1.1.5 and 4.1.
a. Using annual data, compute GDP, GNE, and GNDI in the most recent year.
b. Was your country’s GDP higher or lower than its GNE in the past year? Interpret this finding.
c. Was your country’s GNI higher or lower than its GDP? Interpret this finding.
d. Was your country a net giver or receiver of unilateral transfers?
2. To the right is a partial table of OECD member countries using data from the World Bank, with the countries ranked according to their GDP per capita in 2014 (these numbers are reported in current U.S. dollars). Compute the
ratio of GNI to GDP in each case. What does this imply about net factor income from abroad in each country? Compute the GNI rankings of these countries. Are there any major differences between the GDP and GNI rankings? What do these differences imply?
3. Note the following accounting identity for gross national income (GNI):
GNI = C+I+ G +TB+ NFIA
Using this expression, show that in a closed economy, gross domestic product (GDP), gross national income (GNI), and gross national expenditures (GNE) are the same. Show that domestic investment is equal to domestic savings.
4. See how each of the following would affect the U.S. balance of payments. Include a description of the debit and credit items, and in each case identify which specific account is affected (e.g., imports of goods and services, IM; exports of assets, EXA; and so on). (For this question, you may find it helpful to refer to the Appendix.)
a. A California computer manufacturer purchases a $50 hard disk from a Malaysian company, paying the funds from a bank account in Malaysia.
b. A U.S. tourist to Japan sells his iPod to a local resident for yen worth $100.
c. T he U.S. central bank purchases $500 million worth of U.S. Treasury bonds from a British financial firm and sells pound sterling foreign reserves.
d. A U.S. owner of Sony shares receives $10,000 in dividend payments, which are paid into a Tokyo bank.
e. T he central bank of China purchases $1 million of export earnings from a firm that has sold $1 million of toys to the United States, and the central bank holds these dollars as reserves.
f. T he U.S. government forgives a $50 million debt owed by a developing country.
5. In 2016 the country of lkonomia has a current account deficit of $1 billion and a nonreserve financial account surplus of $700 million. lkonomia’s capital account is in a $150 million surplus. In addition, lkonomian factories located in foreign countries earn $700 million. lkonomia has a trade deficit of $600 million. Assume lkonomia neither gives nor receives unilateral transfers. lkonomia’s GDP is $9.4 billion.
a. What happened to lkonomia’s net foreign assets during 2016? Did it acquire or lose foreign assets during the year?
b. Compute the official settlements balance (OSB). Based on this number, what happened to the central bank’s (foreign)
reserves?
c. How much income did foreign factors of production earn in lkonomia during 2016?
d. Compute net factor income from abroad (NFIA).
e. Using the identity BOP= CA+ FA+ KA, show that BOP= 0.
f. Compute lkonomia’s gross national expenditure (GNE), gross national income (GNI), and gross national disposable income (GNDI).
6. To answer this question, you must obtain data from the Bureau of Economic Analysis (BEA), http://www.bea.gov, on the U.S. balance of payments (BOP) tables. Go to interactive tables to obtain annual data for 2015 (the default setting is for quarterly data). It may take you some time to become familiar with how to navigate the website. You need only refer to
a. Trade balance (T B), net factor income from abroad (NFIA), net unilateral transfers (NUT ), and current account (CA)
b. Financial account (FA)
c. Official settlements balance (OSB), referred to as “U.S. official reserve assets” and “Foreign official assets in the U.S.”
d. Nonreserve financial account (NRFA)
e. Balance of payments (BOP). Note that this may not equal zero because of statistical discrepancy. Verify that the discrepancy is the same as the one reported by the BEA.
7. Continuing from the previous question, find nominal GDP for the United States in 2015 (you can find it elsewhere on the BEA site). Use this information along with your previous calculations to answer the following:
a. Compute gross national expenditure (GNE), gross national income (GNI), and gross national disposable income (GNDI).
b. In macroeconomics, we often assume the U.S. economy is a closed economy when building models that describe how changes in policy and shocks affect the economy. Based on the previous data (BOP and GDP), do you think this is a reasonable assumption to make? Do international transactions account for a large share of total transactions (involving goods and services, or income) involving the United States?
8. During the 1980s, the United States experienced “twin deficits” in the current account and government budget. Since 1998 the U.S. current accouritdeficit has grown steadily along with rising government budget deficits. Do government budget deficits lead to current account deficits? Identify other possible sources of the current account deficits. Do cur
rent account deficits necessarily indicate problems in the economy?
9. Consider the economy of Opulenza. In Opulenza, domestic investment of $400 million earned $15 million in capital gains during 2009. Opulenzans purchased $160 million in new foreign assets during the year; foreigners purchased $120 million in Opulenzan assets. Assume that the valuation effects total $5 million in capital gains.
a. Compute the change in domestic wealth in Opulenza.
b. Compute the change in external wealth for Opulenza.
c. Compute the total change in wealth for Opulenza.
d. Compute domestic savings for Opulenza.
e. Compute Opulenza’s current account. Is the CA in deficit or surplus?
f. Explain the intuition for the CA deficit/surplus in terms of savings in Opulenza, financial flows, and its domestic/external wealth position.
g. How would an appreciation in Opulenza’s currency affect its domestic, external, and total wealth? Assume that foreign assets owned by Opulenzans are denominated in foreign currency.
10. T his question asks you to compute valuation effects for the United States in 2018, using the same methods mentioned in the chapter. Use the bea.gov website to collect the data needed for this question: look under the “International” heading.
Visit the BE& balance of payments data page and obtain the U.S. balance of payments in billions of dollars. Be sure to get the correct year, and annual data, not quarterly. Visit the BE.As net international investment position data page and obtain the U.S. net international investment position for end 2017 to end 2018.
a. What was the U.S. current account for 2018?
b. What was the U.S. financial account for 2018?
c. What was the U.S. change in external wealth for 2018?
d. What was the U.S. total valuation effect for 2018?
e. Does the answer to part (c) equal the answer to part (b) plus the answer to part (d)? Why?
f. W hat do the BEA data indicate was the U.S. valuation effect due to exchange rate changes for 2018?
11. Go to the UN website and find out what the Millennium Development Goals are (http://www.un.org/millenniumgoals). Go to the Gleneagles summit documents and examine the promises made (http://www.g8.utoronto.ca/summit/2005gleneagles /index.html). Use the web to check up on how well these GS promises are being kept, such as the UN goal of0.7% ofGDP in official development assistance, the promise to eradicate export subsidies, and the aim to double aid by 2010. It is now more than ten years on from 2010: has anything improved since then in terms of these commitments? (Hint: Search for Internet sites such as Oxfam or theJubilee Debt Campaign, or look for the World Bank Tools for Monitoring the Millennium Development Goals.)
