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Transcript of FPP1x_--_Slides_Introduction_to_FPP.pdf
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This training material is the property of the International Monetary Fund and is intended for use in IMF Institute for Capacity
Development courses. Any reuse requires the permission of the IMF. The views expressed in this material are those of the
course staff and do not necessarily represent those of the IMF or IMF policy.
Introduction to the Course
DETERMINANTS OF ECONOMIC HEALTHDETERMINANTS OF ECONOMIC HEALTH
EXOGENOUS FACTORS INSTRINSIC FACTORS
ECONOMY
ECONOMIC POLICIES
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Fiscal PolicyFiscal Policy
POLICIESPOLICIES
The use of governmentrevenues and expenditures to
n uence t e economy
Monetary &
Exchange Rate
Policies
Monetary &
Exchange Rate
Policies
What the central bank does to
influence money, credit,
interest and exchange rates
StructuralPolicies
StructuralPolicies
The design of regulations and
institutions to affect how the
economy works
POLICIES AND STABILITYPOLICIES AND STABILITY
Exogenous
Future
Exogenous
oftheeconomy
Policy
Change
Time
State
PoliciesOther
factors
Same
Policies
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Internal balanceInternal balance
MACROECONOMIC STABILITYMACROECONOMIC STABILITY
External balanceExternal balance
u pu s a u
employment and inflation
is low and stable
u pu s a u
employment and inflation
is low and stable
be financed in an orderly
manner
be financed in an orderly
manner
Too much or too little demand
Uncertainty
Inflation and exchange rate
Assets price bubble
Internal balanceInternal balance
INSTABILITY AND CRISISINSTABILITY AND CRISIS
External balanceExternal balanceCRISISCRISIS
Production falls
Unemployment increases
an s a Assets lose their value
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BASIS OF FPPBASIS OF FPP
Financial ro rammin is the desi n of a set ofFinancial ro rammin is the desi n of a set of
macroeconomic policies aimed at achieving desired
macroeconomic objectives
macroeconomic policies aimed at achieving desired
macroeconomic objectives
Accounts for the main sectors of the economyAccounts for the main sectors of the economy
All agents that perform similar economic functionsAll agents that perform similar economic functions
SECTORSSECTORS
Real Sector:
producing units
within an economy
Real Sector:
producing units
within an economy
External Sector:
the rest of the
world
External Sector:
the rest of the
world
Government
Sector
Government
Sector
Monetary
Sector:
Monetary
Sector:
an san s
transactions with other sectors
assets and liabilities to other sectors
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ACCOUNTSACCOUNTS
National Income andProduct Accounts
External Sector AccountsTransactions, claims and
liabilities of an economy
goods and serviceswith/to the rest of the
world
Government Accounts
Revenue, expenditures,
financin assets and
Monetary Accounts
liabilities of the
government
deposit taking institutions
Other selected indicators
LINKS BETWEEN SECTORSLINKS BETWEEN SECTORS
Real SectorReal SectorNational
Income & Prod.
National
Income & Prod.
External SectorExternal SectorGovernment
Sector
Government
Sector
AccountsAccounts
External Sector
Accounts
External Sector
Accounts
Government
Accounts
Government
Accounts
Monetary
Sector
Monetary
SectorMonetary
Accounts
Monetary
Accounts
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ACCOUNTING IDENTITIESACCOUNTING IDENTITIES
Flows or positions involving
agents in one sector and agents in other sector
agents of a sub-sector and the broader sector
Flows or positions involving
agents in one sector and agents in other sector
agents of a sub-sector and the broader sector
should be reflected equally in the respective accountsshould be reflected equally in the respective accounts
Exam les:
The sum of certain aggregates should be the same as the sum
of other aggregates, by construction
The sum of certain aggregates should be the same as the sum
of other aggregates, by construction
Monetary and the government accounts should report the same
amount of bank lending to the government
The supply of goods and services must be equal to the effective
demand for goods and services
BEHAVIORAL RELATIONSHIPSBEHAVIORAL RELATIONSHIPS
Behavioral relations link the development of variables ofBehavioral relations link the development of variables of
Examples:
An increase in credit to the private sector may affect
consumption and/or investment
An increase in taxes and reduction in government
expenditures may affect consumption, production, and
imports
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WHY ONLY 4 ACCOUNTSWHY ONLY 4 ACCOUNTS
The set of real, external, government, and monetary sector
accounts s:
Comprehensive (and captures fiscal and monetary policy)
Generally available
Periodic
Timely
Accurate
COMMON CONCEPTSCOMMON CONCEPTS
Residence
Stock, flows, and transactions
Consolidation of accounts
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Residence is based on center of predominant
economic interest (not on citizenship)
Residence is based on center of predominant
economic interest (not on citizenship)
RESIDENCERESIDENCE
Households and individuals who live in an
economy for a year or longer
Enterprises that produce in the economy
The government
Non-profit organizations
STOCK, FLOWS,
AND TRANSACTIONS
STOCK, FLOWS,
AND TRANSACTIONS
FlowsFlows
Stocks
The level at a point
in time of the
holdings of assets
Stocks
The level at a point
in time of the
holdings of assets
a period of time
a period of time
TransactionsTransactions
Other flowsOther flows
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STOCK, FLOWS,
AND TRANSACTIONS
STOCK, FLOWS,
AND TRANSACTIONS
Other changes
Stock1Flow
Transactions
Stock0
CASH AND ACCRUAL
ACCOUNTING
CASH AND ACCRUAL
ACCOUNTING
Cash accountingCash accounting
Transactions are attributed to the period when
payment is made
Transactions are attributed to the period when
payment is made
Accrual accountinAccrual accountin
Transactions are attributed to the period when they
take place, irrespective of when payment is made
Transactions are attributed to the period when they
take place, irrespective of when payment is made
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CONSOLIDATION OF
ACCOUNTIS
CONSOLIDATION OF
ACCOUNTIS
Eliminates all transactions and debtor-creditorEliminates all transactions and debtor-creditor
relationships between units within the same sector.relationships between units within the same sector.
Allows isolating the transactions and debtor-Allows isolating the transactions and debtor-
creditor relationships between a sector as a whole
and other sectors.
creditor relationships between a sector as a whole
and other sectors.