AI and the failure of economics

How is the inevitable rise in unemployment managed?

External balance

External balance requires balance across both external accounts ie the financial account and the Current account. The financial account manages the flow of investments into and out of Australia whilst the current account covers import and export flows affecting GDP and national income. The following equation explains the structure of an economy.

Y = C+ I + G + (X-M)

Y = GDP

C= Consumption

I = Investment

(X-M) = exports – imports

(X-M) comprises the trade balance, and the balance on current account. The difference between the trade balance and balance on current account is the Net Income Deficit. The NID is the difference between income earned by foreign investment in Australia and income earned by Australian investment overseas. Chart 2 demonstrates graphically external balance.

Chart 2

Compiled from RBA Statistical tables online

Mathematically, net income deficit becomes a negative contribution to (X-M) in the equation