Those Confusing Economics Definitions (Balance of Payment = Current…
Those Confusing Economics Definitions
Balance of Payment = Current Account + Capital Account + Financial Account
Financial Account = (1) Net Direct Investment + (2) Net Portfolio Investment + (3) Net Other Investment + (4) Net Change in Reserve Assets + (5) Net errors and omissions
Net Direct Investment: When you buy a large portion of a company (>10%). Kraft buys Cadbury
Net Portfolio Investment: When you buy a small portion of another company including shares, debt, securities, exchanges etc. Example: I buy shares in Apple
Other Investment. Just every other type of investment
Net Change in Reserve Assets. What the Central Bank does in buying and selling reserves & gold stocks.
Net Errors and Omissions. We think the balance of payments should equal 0 when the exchange rate is not changing. This is here to make up for the difference.
Capital Account = Net Purchases of Foreign Tangible Assets (buildings, patents, trademarks, land) + Net Transfer of Migrant Wealth (when a migrant comes to the UK, they bring their wealth with them)
Current Account = Net Exports (The Trade Balance) + Net Factor Income + Net Reminttances
Measures of Inflation
CPI related. Use geometric mean. CPI also covers a broader population. Follows international definition of goods.
CPI. Like RPI, but doesn't include housing costs, mortgage costs, council tax etc. Does include costs of financial services that RPI doesn't.
CPIH. CPI, but includes housing costs. Has been criticised because of conceptual and measurement errors because it uses
private sector rents to estimate housing costs.for owner occupiers. Is currently not a national statistic, but is being improved and is now the ONS's favourite
RPI related. Use arithmetic mean (means inflation is overestimated. This is why it was dropped).
RPIX. RPI, but doesn't include mortgage interest payments. This prevents changes to the interest rates (which affect mortgages) from impacting this measure of inflation.
Measures of National Output
Measuring output within the borders of a country
Gross Domestic Product. The total market value of all final goods and services produced within a country within a certain period of time. All of output that is produced within the boundaries of the UK. GDP = C + I + G + NX
Gross National Income. This is GDP but it also accounts for net factor income.
Measuring output of a countries' citizens
GDP + Output by USA firms in other countries - Output by Foreign Firms in USA + Output by USA individuals in foreign countries - Output by Foreign Individuals in USA. (Used the USA as example).
Total income earned by a country's residents (called nationals). It includes income that citizens of our country earn abroad but doesn't include income earned by citizens of other countries earned here.
Net National Product. Total income of a countries residents (GNP) - capital depreciation