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Questions and Answers
What is the formula for national savings?
What is the formula for national savings?
S = Y - C - G
How is the formula for national savings derived?
How is the formula for national savings derived?
It is derived from the GDP formula: Y = C + I + G + NX. Assuming a closed economy (NX = 0) and solving for I, we get I = Y - C - G, and since investment spending (I) equals national savings (S), we have S = Y - C - G.
Under the saving-investment spending identity, if you let T denote government tax revenue minus transfer payments, what is the new formula for national savings?
Under the saving-investment spending identity, if you let T denote government tax revenue minus transfer payments, what is the new formula for national savings?
S = (Y - T - C) + (T - G)
Under the saving-investment spending identity, if T > G, there is a budget surplus.
Under the saving-investment spending identity, if T > G, there is a budget surplus.
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Study Notes
National Savings Formula
- National savings (S) formula: S = Y - C - G
- Variables defined:
- S = national savings
- Y = national income (GDP)
- C = consumption spending
- G = government spending
Derivation of National Savings Formula
- Formula derived from GDP: Y = C + I + G + NX
- In a closed economy (where NX = 0), rearranging gives I = Y - C - G
- Investment spending (I) equals national savings (S): hence, S = Y - C - G
Modified National Savings Formula
- New formula incorporating government revenue (T): S = (Y - T - C) + (T - G)
- Here, (Y - T - C) represents private saving, and (T - G) represents public saving (government budget balance)
Budget Surplus Condition
- If T > G, the outcome is a budget surplus, indicating that government revenues exceed government spending
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