Chapter6NationalIncomeandtheCurrentAccount江南大學(xué)《國(guó)際金融》

LearningObjectivesShowhowtheincorporationofaforeigntradesectorintoaKeynesianincomemodelaltersthedomesticsaving/investmentrelationshipandchangesthemultiplier.Demonstratethatnationalincomeequilibriummaynotbeconsistentwithequilibriuminthecurrentaccount.Explainwhyincomelevelsacrosscountriesareinterdependent.TheCurrentAccountandNationalIncomeAggregatespendingisthefocusoftheKeynesianincomemodel.Pricesandinterestratesareassumedtobeconstant.Theeconomyisassumedtonotbeatfullemployment.TheKeynesianIncomeModelDesiredaggregateexpenditures(E)canbewrittenasE=C+I+G+X–M,whereCisconsumptionIisinvestmentspendingbyfirmsGisgovernmentspendingXisexportspendingbyforeignersMisdomesticimportspendingTheKeynesianIncomeModel:ConsumptionConsumptionisassumedtobeafunctionofdisposableincome(Yd),whichisthedifferencebetweennationalincome(Y)andtaxes(T).Moregenerally,wecouldwritethisas

C=a+b(Yd),where aisautonomousconsumptionspending; bisthemarginalpropensitytoconsume(MPC).Forexample,C=200+0.8Yd

TheKeynesianIncomeModel:ConsumptionTheMPCisΔC/ΔYd,whereΔmeans“changein.”Themarginalpropensitytosave(MPS)isΔS/ΔYd.Sincechangesinincomecanonlybeallocatedtoconsumptionandsaving, MPC+MPS=1IftheMPC=0.8,theMPS=0.2Thesavingfunction,then,is

S=-a+sYd,wheresistheMPS.Inourcase S=-200+0.2YdTheKeynesianIncomeModel:I,G,T,&XInvestment(I),governmentspending(G),taxes(T),andexports(X)areallassumedtobeindependentofincomeinthesimplestKeynesianmodel.We’llassumeI=300,G=700,T=500,andX=150TheKeynesianIncomeModel:ImportsImports(M)areassumedtobeafunctionofincome:M=f(Y)Moregenerally,

wheremisthemarginalpropensitytoimport(MPM).Forexample M=50+0.1YNotYdTheKeynesianIncomeModel:ImportsMPM=ΔM/ΔYAlso,averagepropensitytoimport（平均進(jìn)口傾向）isAPM=M/YAfinalconceptistheincomeelasticityofdemandforimports（YEM,進(jìn)口需求的收入彈性）.YEM=MPM/APM

EquilibriumNationalIncomeRecallourexample:C=200+0.8YdYd=Y–TT=500I=300G=700X=150M=50+0.1Y

EquilibriumNationalIncomeThismeansthatdesiredexpenditures(E)canbecalculatedasfollows:E=200+0.8(Y-500)+300+700+150-(50+0.1Y)E=200+0.8Y-400+300+700+150-50-0.1YE=900+0.7YWecanplotthisrelationshiponagraph.Also,letusplota45-degreelineThisrepresentspointswhereY=E.EquilibriumNationalIncomeIncomeorproduction(Y)Desiredspending(C+I+G+X-M)45°900

EquilibriumNationalIncomeEquilibriumoccurswheredesiredspending(E)equalsproduction(Y).Inthegraph,thisoccurswherethelinescross.Mathematically,wecansolveforequilibrium E=Y 900+0.7Y=Y 900=0.3Y Y=3,000EquilibriumNationalIncomeIncomeorproduction(Y)Desiredspending(C+I+G+X-M)45°9003,000

EquilibriumNationalIncomeAtincomelevelsbelowequilibrium,spendingexceedsproduction.Asfirms’inventoriesdecline,theywillincreaseproductionlevels.EventuallyY=3,000.Atincomelevelsaboveequilibrium,productionexceedsspending.Asfirms’inventoriesexpand,theywilldecreaseproductionlevels.EventuallyY=3,000.

LeakagesandInjectionsWecanthinkofsaving,imports,andtaxesas“l(fā)eakages”fromspending.Investment,governmentspending,andexportscanbeseenas“injections”intospending.Inequilibrium,leakagesmustequalinjections: S+M+T=I+G+X

LeakagesandInjectionsInourexample,S=-200+0.2(Y-T)M=50+0.1YT=500I=300G=700X=150

LeakagesandInjectionsS+M+T=I+G+X-200+0.2(Y-500)+50+0.1Y+500=300+700+150-200+0.2Y-100+50+0.1Y+500=300+700+150250+0.3Y=1,1500.3Y=900Y=3,000

EquilibriumIncomeandtheCurrentAccountBalanceSincewehavenounilateraltransfersinthismodel,X–Mrepresentsthecurrentaccountbalance.Startingfromtheleakages=injectionsequationwecanrearrangeS+M+T=I+G+XS+(T–G)–I=X–MTherefore,thedifferencebetweentotalsaving(private+government)andinvestmentmustequalacountry’scurrentaccountbalance.EquilibriumIncomeandtheCurrentAccountBalanceInourexample,thecurrentaccountbalanceisX-M=150–[50+0.1(Y)]X–M=150–50–0.1(3,000)X–M=-200Thiscurrentaccountdeficitmeansthattotalsaving(100)islessthaninvestment(300).

TheAutonomousSpendingMultiplierIfautonomousspendingonC,I,G,orXchanges,byhowmuchwillequilibriumincomechange?Supposeautonomousinvestmentrisesfrom300to330.Becauseofthemultiplierprocess,thisΔIof30willleadtoaΔYofmorethan30.

TheAutonomousSpendingMultiplierTheincreaseof30inIincreasesdisposableincomeby30(sinceTdoesnotdependonincome).BecauseMPC=0.8,spendingrisesby30x0.8=24.BecauseMPM=0.1,Mrisesby3.Thisleavesaneteffectof21inthissecondround.Thisprocesscontinues,withspendingincreasingincrementallyineachround.

TheAutonomousSpendingMultiplierTheoveralleffectisΔY=(k0)ΔI,wherek0iscalledtheopen-economymultiplier.Inourexamplek0=3.3333.Thatis,theincreaseinIof30ultimatelyincreasesYby100.

TheCurrentAccountandtheMultiplierInourexample,nationalincomeequilibrium(Y=3,000)existedalongwithacurrentaccountdeficitof200.Ifpolicy-makerswishtoeliminatethecurrentaccountdeficitbyloweringimports,byhowmuchwouldnationalincomehavetofall?FromthedefinitionofMPM,ΔY=ΔM/MPM=-200/0.1=-2,000Tomakeimportsfallby200,Ymustfallby2,000.

TheCurrentAccountandtheMultiplierIfpolicy-makerswishtoeliminatethecurrentaccountdeficitbyincreasingexports,couldwesimplyincreaseXfrom150to350?Themultiplierprocessmakesthismorecomplicated(ifXrises,Yrises,andasaresultMrises,etc.).ForeignRepercussionsandtheMultiplierProcessWhenhomecountryspendingandincomechange,changesaretransmittedtotheforeigncountrythroughchangesinhomecountryimports.Inoursimplemodel,anincreaseinIintheU.S.istransmittedinthisway: ↑IU.S.→↑YU.S.→↑MU.S.

ForeignRepercussionsandtheMultiplierProcessHowever,intherealworldU.S.exportsarelinkedtoincomesintherestoftheworld(ROW).ThismeansthatincreasedU.S.importsleadtohigherincomesintheROW,andthereforehigherU.S.exports.ThisfeedsbackontoU.S.incomes↑IUS→↑YUS→↑MUS=↑YROW→↑MROW→↑XUS

PriceandIncomeAdjustmentsandInternalandExternalBalanceExternalbalancereferstobalanceinthecurrentaccount(thatis,X=M).Internalbalanceoccurswhentheeconomyischaracterizedbylowlevelsofunemploymentandreasonablepricestability.Howdoestheeconomyadjustwhenthereareexternalandinternalimbalances?PriceandIncomeAdjustmentsandInternalandExternalBalanceCaseI:Deficitinthecurrentaccount;unacceptablyrapidinflationCaseII:Surplusinthecurrentaccount;unacceptablyhighunemploymentCaseIII:Deficitinthecurrentaccount;unacceptablyhighunemploymentCaseIV:Surplusinthecurrentaccount;unacceptablyrapidinflationHowshouldpolicy-makersrespondineachcase?InternalandExternalImbalance:CaseICaseI:Deficitinthecurrentaccount;unacceptablyrapidinflationThegovernmentshouldpursuecontractionarymonetaryandfiscalpolicy.Effect:Pricelevelwillfall,increasingXanddecreasingM.ThedecreaseinincomewillalsoreduceMthroughtheMPM.PriceandIncomeAdjustmentsandInternalandExternalBalanceCaseII:Surplusinthecurrentaccount;unacceptablyhighunemploymentThegovernmentshouldpursueexpansionarymonetaryandfiscalpolicy.Effect:Pricelevelwillrise,decreasingXandincreasingM.Theincreaseinincomewillincreaseemployment.PriceandIncomeAdjustmentsandInternalandExternalBalanceCaseIII:Deficitinthecurrentaccount;unacceptablyhighunemploymentThedirectionoftheeffectisunclear.Expansionarypolicytoincreaseemploymentwillworsenthecurrentaccountdeficit.Contractionarypolicytoreducethecurrentaccountdeficitwillworsenunemployment.PriceandIncomeAdjustmentsandInternalandExternalBalanceCaseIV:Surp