flow of funds

Random Tidbits On National Accounts And Keynesian Models Of Income And Expenditure

13 December 2012

I came across this article (via a Tweet from Stephen Kinsella): Accounting As The Master Metaphor Of Economics by Arjo Klamer and Donald McCloskey which discusses how the framework of national accounts has been pushed to the background in economic analysis over the years. It is a nice read – although boring in a few places. I [...]

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More National Accounts: Consumption Of Fixed Capital

29 March 2012

In one of my recent posts, Saving Net Of Investment, I went into gross saving versus saving net of consumption of fixed capital. I showed how depreciation – or more appropriately, consumption of fixed capital – is treated in the flow of funds accounts. Since the transactions flow matrix is a powerful tool for visualizing [...]

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Kalecki’s Profit Equation

12 March 2012

In my post The Transactions Flow Matrix, I went into how a full transactions flow matrix can be constructed using a simplified national income matrix. Let us reanalyze the latter. The following is the same matrix with some modifications – firms retain earnings and there are interest payments. FU is the undistributed profits of firms. [...]

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National Saving

28 February 2012

Some of the previous posts went into the economic concept of Private Saving and Private Saving Net of Investment. For a closed economy these are: Private Saving = Private Investment + Budget Deficit Private Saving Net of Investment = Budget Deficit For an open economy, we add the current balance of payments to the right [...]

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Saving And Borrowing

25 February 2012

I recently heard from an online commentator that saving is the opposite of borrowing. While there is some “intuition” to this, the following exercise is show it is possible to have a positive saving and incur huge liabilities at the same time. To complicate the matter the word “Savings” is used. Now, in national accounts, this [...]

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The Un-Godley Private Sector Deficit

24 February 2012

Economists worry too much about the government’s deficit although they seem to not know about the private sector deficit. Goldman Sachs’ chief economist Jan Hatzius came to know about the sectoral balances approach and called the difference between United States’ private expenditure and income in “The Un-Godley Private Sector Deficit”. He later included the sectoral balances [...]

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Saving Net Of Investment [Updated]

21 February 2012

There is a tendency of some economic commentators going for the overkill to make inaccurate statements such as Without a government deficit, there would be no private saving. See here and here. (h/t Steve) But this is mixing up saving for saving net of investment. Now, “saving net of investment” is sometimes called “net private saving”, although the [...]

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Net Worth: Part 2

16 February 2012

A commenter on my post on Net Worth asked me if I could do an example. Here it goes. First I do it as done by national accountants as per 2008 SNA - the System of National Accounts and then by the method used by the Federal Reserve’s Z.1 Flow of Funds Accounts. The example is from a [...]

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Income And Expenditure Flows And Financing Flows

13 February 2012

In the previous two posts, I went into a description of the transactions flow matrix and the balance sheet matrix as tools for an analytic study of a dynamical study of an economy. During an accounting period, sectors in an economy are making all kinds of transactions. These can be divided into two kinds: Income [...]

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Z.1, Q3-2011

8 December 2011

The Federal Reserve released the Flow of Funds Accounts of the United States today. The Flow of Funds Accounts provides one of the best snapshot of an economy. In an article appropriately titled ‘No one saw this coming’ – or did they? (see the full paper here), Dirk Bezemer correctly recognizes that the Economics profession’s ignorance [...]

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