ABSTRACT
Looking at a national economy from both the income and expenditure sides, one gets the following identity: https://www.w3.org/1998/Math/MathML"> YD+T+M=CP+IP+G+X https://s3-euw1-ap-pe-df-pch-content-public-p.s3.eu-west-1.amazonaws.com/9780203528549/53028707-50b3-4de5-b361-1414d1c00ab3/content/eqn9_1_B.tif" xmlns:xlink="https://www.w3.org/1999/xlink"/> where YD denotes the disposable income of the private sector, T is the disposable income of the government (all taxes net of all monetary transfers to the private sector) and M is the income of the rest of the world (RoW) from imports of the national economy in question (the left-hand side of (9.1)). On the right-hand side of (9.1) we have private sector expenditures on consumption (CP) and that sector's gross investment (IP), government expenditure on goods and services (G) and RoW expenditure on the national economy's exports (X). By simple rearrangement, we get https://www.w3.org/1998/Math/MathML"> [(YD-CP)-IP)]=(G-T)+(X-M) https://s3-euw1-ap-pe-df-pch-content-public-p.s3.eu-west-1.amazonaws.com/9780203528549/53028707-50b3-4de5-b361-1414d1c00ab3/content/eqn9-1_B.tif" xmlns:xlink="https://www.w3.org/1999/xlink"/> This is equivalent to: https://www.w3.org/1998/Math/MathML"> (SP-IP)=(G-T)+(X-M) https://s3-euw1-ap-pe-df-pch-content-public-p.s3.eu-west-1.amazonaws.com/9780203528549/53028707-50b3-4de5-b361-1414d1c00ab3/content/eqn9-2_B.tif" xmlns:xlink="https://www.w3.org/1999/xlink"/> or, fnally: https://www.w3.org/1998/Math/MathML"> NPS=D+E https://s3-euw1-ap-pe-df-pch-content-public-p.s3.eu-west-1.amazonaws.com/9780203528549/53028707-50b3-4de5-b361-1414d1c00ab3/content/eqn9_2_B.tif" xmlns:xlink="https://www.w3.org/1999/xlink"/> Private savings (SP = YD-CP) comprise household savings and profits retained by firms. In (9.2) we denote by NPS = (SP-IP) the net private savings, by D = (G-T) the budget deficit and by E = (X-M) the RoW deficit (or the current account of the country concerned).
