ECON 201 Lecture Notes - Lecture 5: Mutual Fund, Fiscal Multiplier, Life Insurance
Document Summary
Savings is whatever is left over after consumption. But we already know from income accounting identity that income is equal to spending. We are ignoring government and rest of world. So, y = c + i + g. Taxes reduce income available for spending and saving: Private savings: y - t - c. Y = c + i + g. Y - c - g = i. Y - t -c + t - g = i. (y - t - c) + (t - g) = i. Private saving + public savings = investment. National savings = private saving + public saving. Let"s add back in the rest of the world. Y = c + i + g + nx. Private s + public s = i + nx. If nx is negative, then national savings < 1. If nx is positive, then national savings > 1. This means our savings are leaving the country, financing investments elsewhere.
