Savings, investment and

by yudaica2013 ·

Savings, investment and trade balance savings, investment and trade balance are three flow quantities that satisfy a simple identity: (EF) This simple identity may be based on the concept of national income or amount of goods and services available in a national economy: ( ) Where: is the total consumption including private consumption and public consumption. , Is the public and private investment. , Is the value of all exports. , Is the value of all imports. The second term represents the focal origin of the two components of national income: the goods produced by the country (GDP) and the goods produced outside the country or imports (M). The last term represents the three possible uses of such property: to be consumed, be invested or exported abroad. In a closed economy saving equals investment, ie, saving for the purchase of capital equipment investment becomes.However, in an open national economy that exports and imports goods from overseas investment and savings in general not be exactly equal, this may be rewriting the ( ) as savings and more specifically defined as the difference between GDP and consumption then it follows that the latter must equation is precisely equation (EF). This equation predicts that a country can only savings exceed the investment if exports exceed imports in value.

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