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In
economics Economics () is the social science that studies the production, distribution, and consumption of goods and services. Economics focuses on the behaviour and interactions of economic agents and how economies work. Microeconomics analyzes ...
, a country's national saving is the sum of private and public saving. It equals a nation's income minus consumption and the government spending.


Economic model


Closed economy with public deficit or surplus possible

In this simple economic model with a
closed economy Autarky is the characteristic of self-sufficiency, usually applied to societies, communities, states, and their economic systems. Autarky as an ideal or method has been embraced by a wide range of political ideologies and movements, especially ...
there are three uses for
GDP Gross domestic product (GDP) is a monetary measure of the market value of all the final goods and services produced and sold (not resold) in a specific time period by countries. Due to its complex and subjective nature this measure is ofte ...
(the goods and services it produces in a year). If Y is national income (GDP), then the three uses of C
consumption Consumption may refer to: *Resource consumption *Tuberculosis, an infectious disease, historically * Consumption (ecology), receipt of energy by consuming other organisms * Consumption (economics), the purchasing of newly produced goods for curren ...
, I investment, and G government purchases can be expressed as: * Y = C + I + G National saving can be thought of as the amount of remaining income 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 = Y - C - G = I National saving can be split into private saving and public saving. Denoting T for taxes paid by consumers that go directly to the government and TR for transfers paid by the government to the consumers as shown here: * (Y - T + TR - C) + (T - G - TR) = I (Y − T + TR) is disposable income whereas (Y − T + TR − C) is private saving. Public saving, also known as the budget surplus, is the term (T − G − TR), which is government revenue through taxes, minus government expenditures on goods and services, minus transfers. Thus we have that private plus public saving equals investment. The interest rate plays the important role of creating an equilibrium between saving S and investment in
neoclassical economics Neoclassical economics is an approach to economics in which the production, consumption and valuation (pricing) of goods and services are observed as driven by the supply and demand model. According to this line of thought, the value of a good ...
. * S(r)=I(r) where the interest rate r affects saving positively and affects physical investment negatively.


Open economy with balanced public spending

In an open economic model
international trade International trade is the exchange of capital, goods, and services across international borders or territories because there is a need or want of goods or services. (see: World economy) In most countries, such trade represents a significant ...
is introduced. Therefore the current account is split into
export An export in international trade is a good produced in one country that is sold into another country or a service provided in one country for a national or resident of another country. The seller of such goods or the service provider is an ...
s and imports: * \text = NX = \text - \text = X - M The net exports is the part of GDP which is not consumed by domestic demand: * NX = Y - ( C + I + G ) = Y - \text If we transform the identity for net exports by subtracting consumption, investment and government spending we get the national accounts identity: * Y = C + I + G + NX The national saving is the part of the GDP which is not consumed or spent by the government. * Y - C - G = S = I + NX Therefore the difference between the national saving and the investment is equal to the net exports: * S-I = NX


Open economy with public deficit or surplus

The government budget can be directly introduced into the model. We consider now an open economic model with public deficits or surpluses. Therefore the budget is split into revenues, which are the taxes (T), and the spendings, which are transfers (TR) and government spendings (G). Revenue minus spending results in the public (governmental) saving: * S_G = T - G - TR The
disposable income Disposable income is total personal income minus current income taxes. In national accounts definitions, personal income minus personal current taxes equals disposable personal income. Subtracting personal outlays (which includes the major ...
of the households is the income Y minus the taxes net of transfers: * Y_d = Y - T + TR Disposable income can only be used for saving or for consumption: * Y_d = C + S_P where the subscript P denotes the private sector. Therefore private saving in this model equals the disposable income of the households minus consumption: * S_P = Y_d - C By this equation the private saving can be written as: * S_P = Y - T + TR - C and the national accounts as: * Y = S_P + C + T - TR Once this equation is used in Y=C+I+G+X-M we obtain * C + I + G + (X - M) = S(P) + C + T - TR By one transformation we get the determination of net exports and investment by private and public saving: * S_P + S_G = I + (X - M) By another transformation we get the sectoral balances of the economy as developed by
Wynne Godley Wynne Godley (26 September 192613 May 2010) was an economist famous for his pessimism about the British economy and his criticism of the British government. In 2007, he and Marc Lavoie wrote a book about the " Stock-Flow Consistent" model, an a ...
. This corresponds approximately to
Balances Mechanics The Balances Mechanics (german: Saldenmechanik; from balances of bookkeeping respectively the credit system and mechanics to characterize the strict universal identities) is a work and mean of economics, comparable with Stock-Flow Consistent Model ...
developed by
Wolfgang Stützel Wolfgang Stützel (23 January 1925, in Aalen, Germany – 1 March 1987, in Saarbrücken, West Germany) was a German economist and professor of economics at the Saarland University, Germany. From 1966 to 1968 he was member of the German Council ...
: * (S_P - I) + S_G = (X - M)


See also

*
Balances Mechanics The Balances Mechanics (german: Saldenmechanik; from balances of bookkeeping respectively the credit system and mechanics to characterize the strict universal identities) is a work and mean of economics, comparable with Stock-Flow Consistent Model ...
*
Government debt A country's gross government debt (also called public debt, or sovereign debt) is the financial liabilities of the government sector. Changes in government debt over time reflect primarily borrowing due to past government deficits. A deficit oc ...
*
Inflation In economics, inflation is an increase in the general price level of goods and services in an economy. When the general price level rises, each unit of currency buys fewer goods and services; consequently, inflation corresponds to a reduct ...
* IS/LM model * Sectoral balances


References

{{Economics Macroeconomic aggregates Investment