SECTORAL BALANCES Meaning and
Definition
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Sectoral balances refer to the accounting framework that captures the relationship between the various sectors of an economy: the government, households, and the foreign sector. It helps to understand the flow of funds and the interconnections between these sectors.
In this framework, the sectoral balances are derived from the national income accounts and represent the net financial positions of each sector. Each sector's balance is calculated by subtracting its total expenditures from its total income, considering both real and financial transactions. A positive balance indicates a surplus, while a negative balance suggests a deficit.
The three sectoral balances are as follows:
1. Government sector balance: It measures the difference between government revenue and expenditures. Revenues can come from taxes, fees, and other sources, while expenditures include government spending and transfer payments. A positive government sector balance means a budget surplus, while a negative balance implies a budget deficit.
2. Household sector balance: Also known as the private sector balance, it represents the difference between household income and consumption. Household income includes wages, salaries, interest, dividends, and other forms of income, while consumption refers to the expenditure on goods and services. A positive household sector balance corresponds to savings, while a negative balance indicates a lack of savings or an increase in debt.
3. Foreign sector balance: It reflects the difference between exports and imports. Exports represent the value of goods and services sold to other countries, while imports refer to the value of goods and services purchased from abroad. A positive foreign sector balance indicates a trade surplus (exports > imports), whereas a negative balance reflects a trade deficit (imports > exports).
Analyzing these sectoral balances can help economists and policymakers understand the overall financial health of an economy, its sources of growth, and the potential risks and imbalances that may arise.
Etymology of SECTORAL BALANCES
The word "sectoral" comes from the Latin word "sector", which means "cutter" or "divider". It is derived from the verb "secare", meaning "to cut" or "to divide". The word "balance" comes from the Latin word "bilancia", which means "scale" or "balance". It is derived from the noun "bilanx", meaning "having two scales".
When combined, "sectoral balances" refers to the division or analysis of economic sectors or groups and their respective balances or imbalances. This term, commonly used in economics, particularly in the field of macroeconomics, relates to the study of the various sectors that comprise an economy and their financial positions or flows. It explores the balances or imbalances between the different sectors, such as households, businesses, and governments, and evaluates their impact on the overall economic condition.
