Common Confusions In Macroeconomics
by
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1. THE COUNTRY AND THE WORLD
There is a well known relationship that applies to any country:
Private Sector Savings equal Private Sector Investment plus the Government
Deficit plus the Export Surplus (or minus the Import Surplus)
This relationship can also be stated as:
National Savings (Private Sector Savings minus Government Sector Dissavings)
minus Private Sector Investment equals the Export Surplus
or
National Savings plus the Import Surplus minus Private Sector Investment equals
zero
When a country collects its statistics after the end of the year, these relationships (which are identical) hold exactly, since they are actually identities. However, since statistics are imperfect, there will have to be an “errors and omissions” account to take care of discrepancies due to measurement error.
For the world as a whole, in principle, total exports equal total imports. But again, statistics are imperfect, so the actual figures must be adjusted with an “errors and omissions” account. (Actually, due to widespread underinvoicing of exports, total world measured imports will exceed total world measured exports.)
So, for the world as a whole, since exports equal imports when properly measured, the export and import numbers for the individual countries, when summed, cancel out. The world equation is as follows:
Private Sector Savings in the World equal Private Sector Investment in the World
plus the World’s Net Government Deficits (sum of the Government Deficits in the
World minus sum of Government Surpluses in the World)
Total private sector investment in the world is determined by the business outlook and by financing costs in the different countries. Total net government deficits in the world are determined by a variet
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About the Book
This book clarifies common confusions in macroeconomics. It does not use equations, graphs, diagrams or footnotes.
The book is designed to focus on a number of macroeconomic subjects that are so often unclear in public discussion of policy, in the press, and in economics textbooks. The book also presents information on
It covers a series of important topics. Included are : “surplus of savings”; effects of the import surplus; steep and shallow yield curves; capital movements and interest rates; overvaluation of the dollar; deficits and debt; world income redistribution and petroleum prices; the decline in assessment of risk; bubbles; the “twin deficits”; the Achilles heel of the
About the Author
Peter M. Gutmann is professor of Economics at
He has a doctorate from
Professor Gutmann is widely known due to his pathbreaking work on the subterranean, or underground, economy which created a whole industry of articles and books by economists from all over the world on that subject.
He is the author of “Macroeconomics in Brief” and “Understanding Modern Macroeconomics”. He has published in a range of economic journals including the American Economic Review, the Journal of Income Distribution, the Review of Economics and Statistics, and others.
Professor Gutmann teaches macroeconomics and growth economics at