Understanding Economic Flow of Funds
Exploring principles and conventions of national income accounting, assessing sector contributions, and analyzing flow of funds in the economy. Overview includes income statements, balance sheets, and connecting concepts.
Understanding Economic Flow of Funds
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Presentation Transcript
Chapter 9:Learning Objectives • Flow of Funds Analysis • Relative Contribution of each sector • The National Balance Sheet • A “bridge” to the next section of the text
Principles and Conventions of National Income Accounting • National Balance Sheet vs. National Flow of Funds statement concepts, and their connection • Figure 9.1 : a diagrammatic exposition • By economic sector: • Households • Businesses • Governments • Foreign sector
Basic Identities A-L=NW FA(=M+OFA)+NFA-L=NW
Figure 9.2: Flows of funds in the Canadian economy major sector
Problems with Flow of Funds Analysis • Distinction between capital vs. current spending ignored • Historical values vs. market values • Nominal vs. real values
Summary • National Income accounting provides a way to summarize how financial flows are organized in the economy • The flow of funds matrix provides the actual measure of the relative financial position of different sectors in the economy
