National saving

This article is about the economic term. For the United Kingdom government-run savings institution previously known as National Savings, see National Savings and Investments.

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:

• $Y=C+I+G$

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:

• ${\text{National Savings}}=Y-C-G=I$

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:

• $(Y-T-C)+(T-G)=I$

(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.

• $S=I(r)$

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

In open economy model

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=National savings (S)=I+NX

S=I+NX

S-I=NX

S-I=The portion of national savings not used to financed domestic investment

=NX (Trade balance)

See also

• Government debt
• Inflation
• IS/LM model