National savings

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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.

[edit] 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:

$N a t i o n a l S a v i n g s = Y - C - G = I$

National savings can 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.

NX = Net Exports = (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)