13.2 Saving and Investment in the National Income Accounts

13.2 a. Some Important Identities ^[8]

The national savings of a nation is the aggregate of public savings and private savings. Usually, it is equivalent to the income of a country after subtracting the government buys and expenditures.

In case Y is the GDP or national income, then the three applications of I Investment, C Consumption, and G Government purchases may be represented with the help of the following equation:
Y = C + I+ G

National savings may be regarded as the amount of leftover money, which has not been utilized or expended by the government.
According to a basic pattern of closed economy, any amount, which has not been paid out, is considered as invested:
National Savings = Y-C-G = I

National savings is classified into public savings and private savings. A new expression, T denotes tax payments by customers, which is straightaway received by the government as demonstrated below:
(Y-T-C) + (T-G) = I

Here private savings is calculated by subtracting consumption or C from disposable income, which is represented as (Y-T). The expression (T-G) refers to revenue received by the government through taxes less government expenses. This is termed as public savings and also called as the Budget surplus.

​Net Exports = 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 component of investment not funded by national savings
= NX (Trade balance)​

Hence, it can be concluded that the national savings of a particular nation is the aggregate of its public and private savings.

^{National Savings [9]}

13.2 b. The Meaning of Saving and Investment

The words “saving” and “investing” are sometimes used interchangeably but they are not the same when it comes to individual household or firm. Saving has little risk of loss of funds with minimal gains. Investing, on the other hand, has the potential of better gains or rewards, long term, but also the potential for loss. ^[10]

Example: Buying stocks has certain risks but higher potential for gains than putting down into a savings account but it is the same for the economy as a whole.

^{Saving and Investment [11]}