National saving is made up of two components: public saving and private saving. National income/output (Y), private consumption (C), government spending (G), and government taxes (T) can be used to calculate national saving (S). Move the appropriate phrases to complete the equation for the national saving identity. Assume a closed economy.

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Isabela

9 January, 13:58

National saving is made up of two components: public saving and private saving. National income/output (Y), private consumption (C), government spending (G), and government taxes (T) can be used to calculate national saving (S). Move the appropriate phrases to complete the equation for the national saving identity. Assume a closed economy.

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Joseph Eaton · Answer 1

S-private = (Y-T) - C ... (1)

S-public = (T-G) ... (2)

Therefore:

S = (Y-T) - C + T - G ... (3)

Note: Y = C + I + G

Substitute the Y into equation (3)

That is,

S = (C + I + G - T) - C + T - G

Cancel ❌ out C for C, G for G, T for T so we are left with the identity national savings

S = I

Investment = Private Savings + Public Saving