Saving-investment balance

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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.

Video Saving-investment balance

Description

This is the national income identity:

${\displaystyle Y=C+I+G+(EX-IM)}$

where

• Y: GDP,
• C: national consumption,
• I: national investment,
• G: government spending,
• EX: export,
• IM: import,
• EX-IM: current account.

The national income identity can be rewritten as following:

${\displaystyle (Y-T-C)+(T-G)-I=EX-IM}$

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:

${\displaystyle S-I=EX-IM}$

This identity implies that the difference of national savings and national investment is equal to current account.

Maps Saving-investment balance

See also

• Global imbalances
• Global saving glut

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References

Source of article : Wikipedia