1. MACROECONOMICS.01 Economic & Financial Environment of Global Business
International Business Economics
Economic & Financial
Environment of Global Business
MACROECONOMICS.01

2. GDP & GNP & NDP & NNP Depreciation = GDP – NDP
Depreciation = GNP – NNP
Depreciation = the total of currently produced machines, parts, inventories of raw materials, maintenance, etc. necessary to keep productive capacity at a given and constant level.
Hence, Net Product is sustainable indefinitely.

3. COMPONENTS OF US GDP (1990s)
Consumption (Roughly) 69%
Investment %
General Government 17%
Net exports -1%
TOTAL %
As an Equation
Y = GDP = C + I + G + X - M

4. Why “NET” exports?
Consumption, Investment, Government purchases and Exports include some imported components and materials (metals, chips, food products, ideas, fenders, energy, services, etc.)
These items can be accounted for when imported in bulk, but not when integrated into final products.
Examples: Automobiles, Airliners, Beef, Computers.

5. In other words: C = CD + CM I = ID + IM G = GD + GM X = XD + XM
Where D => Domestically produced & M => Imported. Hence,
Imports = CM + IM + GM + XM

6. NDP or NNP = Income earned
Once income has been earned, what do the earners (consumers in general) do with it?
NNP = C + S + T
C still equals consumption, but
S = saving, and
T = taxes paid (to all governments)

7. (I - S) + (G-T) + (X-M) = 0 Y = Income = NNP or NDP
Y = C + I + G + X-M; but
Y = C + S + T.
So it must be true that
I + G + X-M = S + T.
Therefore,
(I - S) + (G-T) + (X-M) = 0

8. Basic Accounts
I - S = the investment/saving account; the two do not have to be equal, but if S > I, there is money for other things.
G - T = the infamous government budget deficit or surplus. G-T>0 => deficit.
X - M = the equally infamous current account or trade deficit or surplus

9. If G - T > 0 (Budget Deficit)
G - T = Bond sales or government borrowing; who lends to the government?
If S - I > 0, the excess can be used to finance the government deficit.
If X - M < 0 (CA deficit) the capital inflow can also be used.
If G-T>0, then S-I>0, X-M<0 or both. Why?

10. SUMMARY
Remember the identity:
(I - S) + (G - T) + (X - M) = 0
(X - M) is large and positive in Japan; therefore something else must be large and negative.
(X - M) is large and negative in the US; therefore something else must be large and positive.

11. PROBLEMS
The US budget deficit, (G - T) > 0, recently was equal to zero, even negative (surplus). Now we have a deficit again.
What implications does that have for the trade and saving/investment balances?
Asia’s turmoil => rising US current account or trade deficits. Does that make sense to you?

12. Let’s Play With These Equations
Y – G = C + I + CA. What if G is large/small, relative to Y?
Y – T = C + S. What if T is large/small?
Y – C = I + G + CA. What if C is large/small?
Y – C = S + T. What if C is large/small?
Y – CA = C + I + G. What if CA < o or C > 0?

13. More Fun & Games
S + T = I + G + CA. Net supply = net demand. Net of consumption.
Tax revenues provide resources for G.
Saving provides resources for I.
CA = Y – C – I – G. Why is CA < 0 in some countries and not in others?