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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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Answer:

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

The whole of public and private saving that is equivalent to the national income less than the spending of government is called a national saving.

National saving can be written as:

S = Private Savings + Public Saving

This can be estimated as:

Given,

  • National income or output = Y

  • Private consumption = C

  • Government spending = G

  • Government taxes = T

  • National saving = S

Solving further:

  • Private savings = (Y-T) - C (equation 1)

  • Public savings = (T-G)   (equation 2)

Therefore,

Savings (S) = Private saving + Public savings

  • S = (Y-T) - C + T- G   (equation 3)

Here, Y = C + I + G

Substituting value of Y in equation 3:

  • S = (C + I + G -T) - C + T- G

To get the identity national savings cancel out C, G and T.

Therefore, we are left with:

S = I

Investment = Private saving + Public saving

Therefore, S = Private saving + Public saving.

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