National Income and Flow-of-Funds Analysis

By John P. Powelson | Go to book overview
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Chapter 5


Nolandia was discovered by the great trading nations of the world in 18A. Merchants of the Eastern Trading Company, Ltd., landed on its shores that year and were delighted to learn about brothausen and other exotic delicacies that they did not have at home. They quickly sought out Nolandian businessmen with whom to negotiate terms of purchase.

At first the businessmen were wary of selling to foreign merchants, who had no Nolandian dollars but could pay only in gold or sterling. Gold, the merchants explained, consisted of glittering bricks that people all over the outside world were accustomed to trading for goods and services. Sterling, on the other hand, represented deposits in the well-reputed banks of faraway London. Either gold or sterling might be used to buy goods, not only in England but in any corner of the world. Sterling was accepted by anybody, anywhere, in 18A.

With these assurances of payment, Nolandian businessmen sold $25 of goods and services to the foreign merchants. In order to isolate the effects of these sales, the scholars set up a model of the accounts as they would look if no other transactions had occurred. They had no trouble recording the data for the producing sector. They assumed that all business receipts were paid to factors of production (in wages, interest, profit, or rent), and they recorded them as a debita. Exports, which were clearly a part of Nolandian GNP, were entered as a creditb.

Entry 5-1, National Product System (tentative)
Payments to factors of production25a

The scholars encountered a problem when they tried to enter the external contra-entries. Obviously the contra-credit for factor payments should be entered in the household account, but what about the contra- debit for exports? Surely it should not be in either of the known sector


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