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:
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:
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) is 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.
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 national savings not used to financed domestic investment
=NX (Trade balance)
Read more about this topic: National Savings
Famous quotes containing the words economic, model and/or national:
“A different world can be created or re-created—but not until we stop enshrining the economic values of invisible labor, infinite and obsessive growth, and a slow environmental suicide.”
—Gloria Steinem (b. 1934)
“The playing adult steps sideward into another reality; the playing child advances forward to new stages of mastery....Child’s play is the infantile form of the human ability to deal with experience by creating model situations and to master reality by experiment and planning.”
—Erik H. Erikson (20th century)
“[Wellesley College] is about as meaningful to the educational process in America as a perfume factory is to the national economy.”
—Nora Ephron (b. 1941)