Macroeconomics, Macroeconomic analysis and Balance of payment

Macroeconomics is the study of the behavior of the economy as a whole. This is different from microeconomics, which concentrates more on individuals and how they make economic decisions. Needless to say, macroeconomy is very complicated and there are many factors that influence it. These factors are analyzed with various economic indicators that tell us about the overall health of the economy.

Macroeconomists try to forecast economic conditions to help consumers, firms and governments make better decisions.

• Consumers want to know how easy it will be to find work, how much it will cost to buy goods and services in the market, or how much it may cost to borrow money.
• Businesses use macroeconomic analysis to determine whether expanding production will be welcomed by the market. Will consumers have enough money to buy the products, or will the products sit on shelves and collect dust?
• Governments turn to the macroeconomy when budgeting spending, creating taxes, deciding on interest rates and making policy decisions.

Macroeconomic analysis is done by the following 4 accounts, 

1^st two are maintained by Central government and the rest two are maintained by Central bank.

1.       National Income Account: Here govt record income of whole nation by DGP, GNP( now we call GNI)

2.       Fiscal Account: Here govt record all income and expenditure

The following 2 accounts are maintained by central bank.

3.       Monetary account: here money supply statics are done in economy, coins, currency are recorded

4.       Balance of payment account: This is an account where all international economic transactions by a country with the rest of the world during a particular period of time is recorded.

Balance of payment account:

Central bank keeps the record by double entry book keeping system. It consists of four main accounts

1.       The current account: 4 sections

 i. trading goods :export and import,

 ii. Services : diplomatic expenditure, travelling, tourism, transport, education, medical treatment, consultancy, shipping, military expenditure

iii) Factor income payments accounts: income of FDI and Foreign portfolio investment

iv). Unilateral transfer: remittance, aids, gifts, grants

2.       Capital Account: All types of foreign investment (FDI and portfolio), Foreign loan and its servicing (repayment), Banking and non banking claims and liabilities (Nostro and Vostro accounts)

3.       Official Reserve Account: Govt account, all govt transaction with rest of the world, gold holding of the gove, SDR holding of the govt, IMF reserve, Foreign currency holding of govt.

4.       Adjustment A/c (statistical discrepancy account):

Now there is explanation of this

Explanatory notes from BIBM