National saving

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In economics, a country's national saving is the sum of private and public saving. It equals a nation's income minus consumption and the government’s taxes levied.

Economics social science that analyzes the production, distribution, and consumption of goods and services

Economics is the social science that studies the production, distribution, and consumption of goods and services.

Saving income not spent, or deferred consumption

Saving is income not spent, or deferred consumption. Methods of saving include putting money aside in, for example, a deposit account, a pension account, an investment fund, or as cash. Saving also involves reducing expenditures, such as recurring costs. In terms of personal finance, saving generally specifies low-risk preservation of money, as in a deposit account, versus investment, wherein risk is a lot higher; in economics more broadly, it refers to any income not used for immediate consumption.

Government budget balance Difference between revenues and spending

A government budget is a financial statement presenting the government's proposed revenues and spending for a financial year. The government budget balance, also alternatively referred to as general government balance, public budget balance, or public fiscal balance, is the overall difference between government revenues and spending. A positive balance is called a government budget surplus, and a negative balance is a government budget deficit. A budget is prepared for each level of government and takes into account public social security obligations.


Economic model

Closed economy with public deficit or surplus possible

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:

Gross domestic product market value of goods and services produced within a country

Gross domestic product (GDP) is a monetary measure of the market value of all the final goods and services produced in a period of time, often annually. GDP (nominal) per capita does not, however, reflect differences in the cost of living and the inflation rates of the countries; therefore using a basis of GDP per capita at purchasing power parity (PPP) is arguably more useful when comparing differences in living standards between nations.

Consumption (economics) purchase and use of goods and services

Consumption is a major concept in economics and is also studied in many other social sciences.

In macroeconomics, investment is the amount of goods purchased or accumulated per unit time which are not consumed at the present time. The types of investment are residential investment in housing that will provide a flow of housing services over an extended time, non-residential fixed investment in things such as new machinery or factories, human capital investment in workforce education, and inventory investment.

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:

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) 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 focusing on the determination of goods, outputs, and income distributions in markets through supply and demand. This determination is often mediated through a hypothesized maximization of utility by income-constrained individuals and of profits by firms facing production costs and employing available information and factors of production, in accordance with rational choice theory.

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 is introduced. Therefore the current account is split into exports and imports:

An open economy is an economy in which there are economic activities between the domestic community and outside. People and even businesses can trade in goods and services with other people and businesses in the international community, and funds can flow as investments across the border. Trade can take the form of managerial exchange, technology transfers, and all kinds of goods and services.

International trade exchange of capital, goods, and services across international borders or territories

International trade is the exchange of capital, goods, and services across international borders or territories. In most countries, such trade represents a significant share of gross domestic product (GDP). While international trade has existed throughout history, its economic, social, and political importance has been on the rise in recent centuries. Carrying out trade at an international level is a more complex process than domestic trade. Trade takes place between two or more nations. Factors like the economy, government policies, markets, laws, judicial system, currency, etc. influence the trade. The political relations between two countries also influences the trade between them. Sometimes, the obstacles in the way of trading affect the mutual relationship adversly. To avoid this, international economic and trade organisations came up. To smoothen and justify the process of trade between countries of different economic standing, some international economic organisations were formed. These organisations work towards the facilitation and growth of international trade.

Current account

In economics, a country's current account is one of the two components of its balance of payments, the other being the capital account. The current account consists of the balance of trade, net primary income or factor income and net cash transfers, that have taken place over a given period of time. The current account balance is one of two major measures of a country's foreign trade. A current account surplus indicates that the value of a country's net foreign assets grew over the period in question, and a current account deficit indicates that it shrank. Both government and private payments are included in the calculation. It is called the current account because goods and services are generally consumed in the current period.

The net exports is the part of GDP which is not consumed by domestic demand:

If we transform the identity for net exports by subtracting consumption, investment and government spending we get the national accounts identity:

The national saving is the part of the GDP which is not consumed or spent by the government.

Therefore the difference between the national saving and the investment is equal to the net exports:

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 these are the taxes (T) and the spendings there are transfers (TR) and government spendings (G). Revenue minus spending results in the public (governmental) saving:

The disposable income of the households is the income Y minus the taxes net of transfers:

Disposable income can only be used for saving or for consumption:

where the subscript P denotes the private sector. Therefore private saving in this model equals the disposable income of the households minus consumption:

By this equation the private saving can be written as:

and the national accounts as:

Once this equation is used in Y=C+I+G+X-M we obtain

By one transformation we get the determination of net exports and investment by private and public saving:

By another transformation we get the sectoral balances of the economy as developed by Wynne Godley. This corresponds approximately to Balances Mechanics developed by Wolfgang Stützel:

See also

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Net national income (NNI) is an economics term used in national income accounting. It can be defined as the net national product (NNP) minus indirect taxes. Net national income encompasses the income of households, businesses, and the government. Net national income is the difference between what is earned by nationals living inside and outside the country put together and non-nationals living in the country.

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Sectoral balances

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