National Savings

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.

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 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. The new terms, T is taxes paid by consumers that goes directly to the government and TR is transfers paid by the government to the consumers as shown here:

(Y − T + TR) is disposable income whereas (Y − T + TR − C) is private savings. Public savings, also known as the budget surplus is the term (T − G − TR), which is government revenue through taxes, minus government expenditures, minus transfers.

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

In Keynesian models the identity between savings and investments is generated by the investment who determines income and by this the savings in the economy.

In an open economic model international trade is introduced into the model. Therefore the current account is split into export and import:

The net exports is the part of GDP which is not consumed by domestic demand respectively the domestic demand which is not covered by the domestic production (GDP).

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