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Western University
Economics 2152A/B
Ayoub Yousefi

Chapter 2, National Income Accounting The uses of private saving S = I + CA Spvt= I - govt+ CA (equation 1) Equation 1 implies that an economy’s private saving can be used in three ways: 1. I – firms borrow from private savers to finance investment (comparative static analysis) 2. When government runs a budget deficit (S govt< 0) it must borrow from private savers 3. When CA > 0  foreigners must borrow from Canadian private sector by selling to Canadians some of their assets (ex. Bonds, Stock, etc.) - If CA < 0, means borrowing from foreigners, by selling to them some of our assets Spvt+ Sgovt= I + CA 12 + 3 = 10 + 5 – Lending to foreigners 12 – 3 = 10 -1 – borrowing from foreigners 12 – 3 = 12 -3 – borrowing from foreigners 12 +0 = 12 + 0 – government’s budget is balanced, T = TR + INT + G. CA = NX + NFP, borrowing can still have taken place, it just has to equal net exports, or vice versa. Macroeconomic Variables – Nominal Vs Real Nominal variables are measured in terms of current market values, Q t P tNominal output at time t (at current dollar) Changes in nominal variable can be broken down into changes in quantity and changes in price, that is why economists use real variables Advantage : aggregation of different types of goods and services at the current time Disadvantage : Comparison of the value of an economic variable at two different points of time. Real Variables are measured in terms of the “base year” prices  Qt * Po Growth rate formulas Let X
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