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==References==
==References==

Revision as of 18:28, 11 March 2016

In economics, a country's national savings is the sum of private and public savings. It is generally equal to a nation's income minus consumption and government purchases.

Economic model of national savings

In this simple economic model with a closed economy there are three uses for GDP, (the goods and services it produces in a year). If Y is national income (GDP), then the three uses of C consumption, I investment, and G government purchases can be expressed as:

National savings can be thought of as the amount of remaining money that is not consumed, or spent by government. In a simple model of a closed economy, anything that is not spent is assumed to be invested:

National savings should be split into private savings and public savings. A new term, T is taxes paid by consumers that goes directly to the government as shown here:

(Y - T) is disposable income. (Y - T) less consumption (C) is private savings. The term (T - G) is government revenue through taxes, minus government expenditures, which is public savings, also known as the Budget surplus.

The interest rate plays the important role of creating an equilibrium between saving and investment.

In open economy model (balanced public spendings)

NX = Net eXports = eXports - iMports

NX = (X-M)

NX=Y-(C+I+G)=Y-Domestic demand

Y=C+I+G+NX = National accounts identity

Y-C-G= S =I+NX

S=I+NX = National savings

S-I = The portion of national savings not used to finance domestic investment = NX = Trade balance

In open economy model (public deficit or surplus)

(1) Y = C + I + G + (X - M) = National accounts identity

(2) Yd = Y - TAX + TR = Disposable income depending on aggregated demand, taxes and transfers

(3) Yd = S + C = Disposable income depending on savings and consumption


→ (2),(3) S + C = Y - TAX + TR

(4) Y = S + C + TAX – TR = Aggregated demand


→ (1),(4) C + I + G + (X – M) = S + C + TAX – TR

(5) S = (X - M) - (TAX - TR – G) + I = National savings

[ S - I + (TAX - TR – G) = The portion of national savings not used to finance domestic investment and public deficit = (X - M) = Trade balance ]

See also

References