Here is a thread on macroeconomics. Are you ready? It's for everyone, investors, journalists, students, & people interested in the basics to read the news.
First, u get people throwing words like supply & demand a lot. I'll go through it all using IMF GDP & BOP standards. Okay?
First, u get people throwing words like supply & demand a lot. I'll go through it all using IMF GDP & BOP standards. Okay?
1. A national output is either expressed as production or expenditure. As in, u either create a bunch of stuff, as in,
GDP = gross domestic product
GDP = stuff produced in economy such as
GDP = Agri + Industrial + Services
China does this
GDP = Primary + secondary + tertiary.
GDP = gross domestic product
GDP = stuff produced in economy such as
GDP = Agri + Industrial + Services
China does this
GDP = Primary + secondary + tertiary.
2. Some countries can produce a lot of stuff, some can't so they import (think China exporting manu & import raw stuff don't have). If we don't trade, we just eat/consume what we can produce. A production GDP approach doesn't look at demand side. Planned economies use production.
3. If you produce stuff, u want people to buy/use the goods too. So there is another way to look at output, through expenditure or the demand side of things.
Looks like this:
GDP = private Consumption + Government consumption + Investment + eXport–iMport
GDP = C + G + I + X–M
Looks like this:
GDP = private Consumption + Government consumption + Investment + eXport–iMport
GDP = C + G + I + X–M
4. First, some economies consume more than what they produce (US) & some spend less than they produce (China). But actually, US has surplus of raw and services & deficit of manufactured.
And so to afford the demand, they import capital.
2 ways: through income or investment.
And so to afford the demand, they import capital.
2 ways: through income or investment.
GDP identity if X-M is negative:
GDP = C + G + I + X–M
Have to square w/ income & capital account. Income u know, it's through either resident sending money home (Filipino workers remitting) or firms repatriating profits. Or capital through loans, portfolio or direct investment
GDP = C + G + I + X–M
Have to square w/ income & capital account. Income u know, it's through either resident sending money home (Filipino workers remitting) or firms repatriating profits. Or capital through loans, portfolio or direct investment
If a country consumes more than it produces, it has to finance it through income coming or investment from abroad. Net capital transfers + net income transfer = the shortage b/n demand & the supply (production of GDP).
Over time, if produce more than consume, accumulate savings
Over time, if produce more than consume, accumulate savings
Net trade (services + merchandise) + Net income (remittances, etc) + Net capital (portfolio, direct, loans etc) = Your balance of payment
Whether u got more money than u need or short, and of course this matters if u got any savings.
Gross national disposable income (GNDY) =
Whether u got more money than u need or short, and of course this matters if u got any savings.
Gross national disposable income (GNDY) =
National disposable income = C + G + I + CAB (Income from abroad = remittances + repatriation of profits)
GDP = C + G + I + X–M
GDP - net trade = C + G + I
GNDY = C + G + I + CAB
GNY - C - G - I = CAB
CAB is diff b/c ur saving & investment
Meaning, to invest u, need to save
GDP = C + G + I + X–M
GDP - net trade = C + G + I
GNDY = C + G + I + CAB
GNY - C - G - I = CAB
CAB is diff b/c ur saving & investment
Meaning, to invest u, need to save
If u don't save, need to import capital!
Let's analyze an economy like Indonesia. If Indonesia's capital (foreigners buying stocks & bonds) & income (tourism, remittances, net trade) down then the following happen:
*Demand of IDR vs USD falls
*IDR falling = expensive to import
Let's analyze an economy like Indonesia. If Indonesia's capital (foreigners buying stocks & bonds) & income (tourism, remittances, net trade) down then the following happen:
*Demand of IDR vs USD falls
*IDR falling = expensive to import
GDP = C + G + I + X–M
So naturally u see that the M will fall more than the X
so X-M becomes less negative.
And that is because C, which is private consumption, falls as income falls.
While revenue falling, government is spending more, so G rises. Investment likely falls.
So?
So naturally u see that the M will fall more than the X
so X-M becomes less negative.
And that is because C, which is private consumption, falls as income falls.
While revenue falling, government is spending more, so G rises. Investment likely falls.
So?
So naturally, it needs less foreign funding and so the FX depreciation is good as a shock absorber (I recommended BI when I gave a speech in Bali years ago) & only if CPI low.
Okay, don't forget that foreign investors risk appetite improve too if an EM survives shocks like IDR.
Okay, don't forget that foreign investors risk appetite improve too if an EM survives shocks like IDR.
GDP = C + G + I + X–M
And finally, a country like Indonesia, which is an emerging market, and that means a lot of people & their consumption basket is still predominantly ESSENTIAL (food share of consumption high), then there's only so much C can fall.
People need to consume!
And finally, a country like Indonesia, which is an emerging market, and that means a lot of people & their consumption basket is still predominantly ESSENTIAL (food share of consumption high), then there's only so much C can fall.
People need to consume!
Key to avoiding a massive shock is:
*Have space to move, as in not too much CPI & too much foreign debt, and willing to use FX to absorb shock
*Do fiscal for vulnerable population like poor + SMEs + key sectors
*Avoid malinvestment & accept adjustment & create space for recovery
*Have space to move, as in not too much CPI & too much foreign debt, and willing to use FX to absorb shock
*Do fiscal for vulnerable population like poor + SMEs + key sectors
*Avoid malinvestment & accept adjustment & create space for recovery