Finance:Saving-investment balance

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Short description: Balance of national savings and investments

In economics, saving-investment balance or I-S balance is a balance of national savings and national investment, which is equal to current account. This relationship is obtained from the national income identity.

Description

This is the national income identity:[1]

[math]\displaystyle{ Y=C+I+G+(EX-IM) }[/math]

where

The national income identity can be rewritten as following:[2]

[math]\displaystyle{ (Y-T-C)+(T-G)-I=EX-IM }[/math]

where T is defined as tax. (Y-T-C) is savings of private sector and (T-G) is savings of government. Here, we define S as National savings (= savings of private sector + savings of government) and rewrite the identity as following:

[math]\displaystyle{ S-I=EX-IM }[/math]

This identity implies that the difference of national savings and national investment is equal to current account.[2][3][4]

See also

References

  1. Christiano, 2003, Rough Notes on National Income Accounting and the Balance of Payments, Northwestern University, p.1.
  2. Jump up to: 2.0 2.1 Christiano, 2003, Rough Notes on National Income Accounting and the Balance of Payments, Northwestern University, p.3.
  3. IMF publishment, 2006, Do Current Account Deficits Matter?, accessed 3 February 2015.
  4. Tejvan Pettinger, 2012, Current Account = Savings – Investment, EconomicsHelp.org, accessed 3 February 2015.