2-1.2. The Roles of Government and the Rest of the World in the Macroeconomy

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来自 University of Illinois at Urbana-Champaign 的课程

Country Level Economics: Macroeconomic Variables and Markets

221 个评分

University of Illinois at Urbana-Champaign

Country Level Economics: Macroeconomic Variables and Markets

221 个评分

课程 3（共 7 门，Specialization Managerial Economics and Business Analysis ）

This course discusses how macroeconomic variables affect individuals’ personal, professional, and public activities and lays the foundation for the analysis of the mechanisms that drive macroeconomic variables. It start in its first module by introducing the key macroeconomic variables and explaining how they are defined and measured in order to enable the students to interpret macroeconomic data properly. In the second module, the course offers a perspective for separating out various parts of the economy driven by different processes and for combining those components to develop a richer view of the whole. In particular, it applies this approach to the analysis of the relationship of the trade deficit with the budget deficit and private savings, offering insights about some key determinants of the balance of payments. The third and fourth modules focus on the analyses of the foreign currency and money markets to provide fundamental models of the interest rate and exchange rate determination. They also discuss how these variables interact with each other and with the macroeconomic conditions, particularly monetary policy and the expectations about the future trends in the economy. These analyses lay the foundation for more comprehensive models of the macroeconomy in the next course of the Managerial Economics and Business Analysis Specialization. At the end of this course, you will be able to: • Systematically assess the national and international economic environment in which you live and work. • Analyze macroeconomic issues using key tools. • Be a more effective professional in your line of activity. This course is part of the iMBA offered by the University of Illinois, a flexible, fully-accredited online MBA at an incredibly competitive price. For more information, please see the Resource page in this course and onlinemba.illinois.edu.

从本节课中

Module 2: GDP Components, Twin Deficits, and Balance of Payments

Expenditure is often different from income for individuals, but for the economy as a whole, aggregate income is always identical to aggregate expenditure. This has important implications for the functioning of the macroeconomy and the way policies affect it. The income-expenditure identity is also fundamental to the ways various part of the economy with different processes interact with each other. For example, it sheds a lot of light on the formation of the trade deficit and its connection with budget deficit and private savings.

2-1.1. Components of GDP10:27

2-1.2. The Roles of Government and the Rest of the World in the Macroeconomy8:08

与讲师见面

Hadi Salehi Esfahani
Professor of Economics and Professor of Business Administration
Department of Business Administration, College of Business

Now, let's introduce the role of government in the macro-economy.

This is the graph that we had before with product and factor markets and firms,

households interacting, and last,

we introduced the capital market with investors coming and taking savings

and putting them into use for creating production capacity for future production.

If we add government,

then we have another type of expenditure which is called Government Expenditure.

This is what the government spends on its employees,

on politicians, on buildings,

equipment that it needs for its operations.

In order to pay for its expenditure,

the government needs to take in some resources,

the main source of those resources is taxes that comes from households,

so households pay taxes to the government but

the government also makes some payments to the households which we call Transfers.

Those are payments that are not in

exchange for goods and services purchased by the government,

it's like social security or subsidizing insurance or other payments, welfare payments,

that are made to people partly because they can't earn either income or

they're entitled to some payment from the government and they don't need

to work for it or provide any good service for it.

I'm putting these two together and showing the one arrow going from

the household to the government to represent taxes net of transfers.

We separate out government expenditure from transfers because it's

only government expenditures that generates demand for

goods and services directly by the government.

The transfers goes to the households

and the households may spend them or may not spend them,

so that's why we separate them out.

The net flow of resources from the households to the government,

we call taxes net of transfers.

Notice that some households may be paying the tax,

some other households may be receiving the transfers,

but here in macroeconomics,

we put them all together.

The taxes net of transfers that the government receives may

be sufficient for paying for government expenditure or may not be sufficient.

In most countries, it's insufficient.

The government spends a lot more than what it takes in by way of net taxes.

To supplement net taxes and be able to pay for its purchases of goods and services,

the government borrows from the Capital Markets,

and the amount of borrowing is what we call Budget Deficit.

Essentially, households save, that money goes to the capital market,

part of it goes to the investors,

but part of it is also borrowed by the government.

The government issues bonds,

sells them in the Capital Markets, in the Capital Markets,

the bonds are normally purchased by banks and banks take household savings

in order to pay for the bonds or to provide resources to the investors.

If you separate out private and public consumption and investment,

here's the picture on a per capita basis in 2017.

Private consumption per capita was,

$41,100, about 61.9% of GDP,

private investment was about $10,000 or $9900 per capita,

about 16.6% of GDP,

government consumption per capita was $8400,

about 14.1% of GDP and,

Public Investment, Government Investment in ports, roads, et cetera,

was about $1900 per capita or 3.2% of GDP,

and then the total GDP per capita that we've seeing before, $59,500,

a 100% of GDP.

Some historical figures, here's private consumption and you

can see much more clearly the start of the increase,

around 1980 and steady rise in the share of private consumption in total GDP.

Private Investment has been about 16%,

17% of GDP for a long time,

in recent years, it has fallen off somewhat due to the Great Recession.

Government Consumption used to be very high during World War II,

but that was very temporary, it declined substantially.

There were some increase in the 1960s as welfare programs were introduced,

but ever since 1970,

there's been a more or less downward trend in government consumption.

So, you can see that the total consumption that went up after 1980

was almost entirely due to increasing private consumption,

and finally government investment used to be more than 5% of GDP in the 50s and 60s,

but has been on a very slow decline ever since.

Nowadays, adds up to roughly about 3% of GDP.

The final component that

we would like to add to the model of macro-economy is the rest of the world.

The rest of the world buys our goods and services which call exports and pays for it.

So, here's the arrow showing the flow of

money going from the rest of the world to our firms for our exports,

but there're firms also buy goods and services from the rest

of the world and pay for them, we call imports.

If exports are not sufficient to pay for our imports,

we need to borrow from the rest of the world to be able to

pay for the additional goods and services that we buy from them,

that's what we call trade deficit.

Trade deficit is flow of resources from the rest of

the world to our capital markets or to our economy.

This view of trade is very different than what

some politicians sometimes refer to as trade deficit being our money going out.

It's true that we have to come up with some pieces of paper either of cash or

some notes to give to the rest of

the world to get their money in order to pay for our imports,

but notice that this is when we have a trade deficit.

It means that we are consuming more than what we are producing and it

really the rest of the world working and giving us their goods and services,

and we just give them pieces of paper to hold on to.

Maybe later on, we'll pay them back by way of goods and services or

maybe we will postpone paying back indefinitely.

Here's the graph showing our imports since the 1920s,

the U.S. economy used to be relatively close,

and imports were less than 5% of GDP until 1970s, but ever since,

there's been a rise in the share of imports in GDP of the US that's due to globalization.

Our exports from the US also have started rising around the same time.

However, not as fast as the imports,

and that has led to a gap between the two,

which is trade deficit,

and here's the trend in the trade deficit,

ever since1970s, it has been upward.

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