National savings

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 closed economy model 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:

• NationalSavings = 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

With (Y - T) being disposable income (Y - T) less consumption (C) is private savings. The term (T - G) is government revenue though 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

Y-C-G=National savings (S)=I+NX

S=I+NX

S-I=NX

S-I=The portion of investment not financed by national savings=

=NX (Trade balance)

See also

• Government debt
• Inflation
• IS/LM model

References