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81 HAPTER 12 NATIONAL INCOME ACCOUNTING AND THE BALANCE OF PAYMENTS Chapter Organization The National Ine Accounts National Product and National Ine Capital Depreciation, International Transfers, and Indirect Business Taxes Gross Domestic Product National Ine Accounting in a Closed Economy Consumption Investment Government Purchases The National Ine Identity for an Open Economy An Imaginary Open Economy The Current Account and Foreign Indebtedness Saving and the Current Account Private and Government Savings Case Study: Government Budget Deficit Reduction May Not Increase the Current Account Surplus The Balance of Payments Accounts Examples of Paired Transactions The Fundamental Balance of Payments Identity The Current Account, Once Again The Financial Account The Capital Account The Statistical Discrepancy Official Reserve Transactions Box: The Mystery of the Missing Surplus Case Study: Is the United States the World39。s Biggest Debtor? Summary 82 CHAPTER OVERVIEW This chapter introduces the international macroeconomics section of the text. The chapter begins with a brief discussion of the focus of international macroeconomics. You may want to contrast the type of topics studied in international trade, such as the determinants of the patterns of trade and the gains from trade, with the issues studied in international finance, which include unemployment, savings, trade imbalances, and money and the price level. You can then preview the manner in which the theory taught in this section of the course will enable students to better understand important and timely issues such as the . trade deficit, the experience with international economic coordination, European Economic and Moary Union, and the financial crises in Asia and other developing countries. The core of this chapter is a presentation of national ine accounting theory and balance of payments accounting theory. A solid understanding of these topics proves useful in other parts of this course when students need to understand concepts such as the intertemporal nature of the current account or the way in which export earnings are required to finance external debt. Students will have had some exposure to closed economy national ine accounting theory in previous economics courses. You may want to stress that GNP can be considered the sum of expenditures on final goods and services or, alternatively, the sum of payments to domestic factors of production. You may also want to explain that separating GNP into different types of expenditures allows us to focus on the different determinants of consumption, investment, government spending, and exports. The relationship between the current account, savings, investment, and the government budget deficit should be emphasized. It may be useful to draw an analogy between the savings of an individual and the savings of a country to reinforce the concept of the current account as the savings of an economy. Extending this analogy, you may pare the dissavings of many students when they are in college, acquiring human capital, and the dissavings of a country that runs a current account deficit to build up its capital stock. You may also want to contrast a current account deficit that reflects a lot of investment with a current account deficit that reflects a lot of consumption to make the point that all current account deficits ar