Bill Mitchell — Sectoral balances – Part 1

I am now using Friday’s blog space to provide draft versions of the Modern Monetary Theory textbook that I am writing with my colleague and friend Randy Wray. We expect to complete the text by the end of this year. Comments are always welcome. Remember this is a textbook aimed at undergraduate students and so the writing will be different from my usual blog free-for-all. Note also that the text I post is just the work I am doing by way of the first draft so the material posted will not represent the complete text. Further it will change once the two of us have edited it.

 

Chapter 6 Sectoral Accounting

In Chapter 5 the national accounting framework was outlined out in some detail. The framework provides a means for measuring the economic activity in an economy over a period of time and allows us to consider the sources of expenditure that drive national income and output. In this chapter we consider economic activity from a different perspective.

To start the discussion, recall the distinction between stocks and flows. In a monetary economy, flows of expenditures measured in terms of dollars spent over a period involve transactions between sectors in the economy, which also have logical stock counterparts. There are two related frameworks that economists use to account for these transactions.

The national accounting framework and the so-called flow-of-funds accounts are two different, but related ways of considering national economic activity.

[NOTE: SOME MORE BACKGROUND HERE TO COME - DETAILING HOW JOINING THESE FRAMEWORKS ALLOWS US TO EXPLICITLY UNDERSTAND THE MONETARY SIDE OF THE ECONOMY]

Bill Mitchell — billy blog
Sectoral balances – Part 1
Bill Mitchell