National Income and Flow-of-Funds Analysis

National Income and Flow-of-Funds Analysis

National Income and Flow-of-Funds Analysis

National Income and Flow-of-Funds Analysis

Excerpt

This is a textbook for a course in national income. It is intended both to teach the accounts themselves and to cover techniques of analyzing them. In addition, four chapters are devoted to the system of flow-of- funds accounts published by the Federal Reserve Board in revised form for the first time in August, 1959. I have included these accounts because I believe that monetary processes are an integral part of income analysis, and to omit them is to tell only part of the story.

Part One (the first six chapters) is devoted to a study of the national income and product accounts themselves. Little or no economic analysis is covered in these chapters, for it is felt that the student should digest the accounting structure first. Part Two (Chapters 7 to 10, inclusive) covers traditional elements of national income analysis: the multiplier and consumption function, acceleration principle, and other functional relationships affecting the accounts.

Only in Part Three (Chapters 11 to 14, inclusive) do we arrive at the flow-of-funds accounts. Here the relationship between saving and investment, on the one hand, and the creation and flow of money and other financial instruments, on the other, is taken up. While it is presumed that the student is familiar with the process of money creation, it is not supposed that he has any earlier knowledge of how it is recorded in the flow-of-funds accounts and how it is related to income formation. Some of the "mysteries" of saving, investment, and money creation are probed here.

The final part (Chapter 15 to the end) reaches the heart of economic problems as they may be read and interpreted in the national product and flow-of-funds accounts. Chapter 15 samples Keynesian doctrine and depression theory; in Chapters 16 and 17 the process of inflation is traced through the accounts. The effects of productivity changes on real income and product, and redistributions of real income during inflation, are analyzed in Chapters 18 to 20. The impact of domestic economic events (both depression and inflation) on the balance of payments is taken up in Chapter 21. Throughout these chapters the need for conscious eco-

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