Saving-investment balance

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.

Description

This is the national income identity:^[1]

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

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:^[2]

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

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.^[2][3][4]

See also

• Global imbalances
• Global saving glut

References

1. Christiano, 2003, Rough Notes on National Income Accounting and the Balance of Payments, Northwestern University, p.1.
2. Christiano, 2003, Rough Notes on National Income Accounting and the Balance of Payments, Northwestern University, p.3.
3. IMF publishment, 2006, Do Current Account Deficits Matter?, accessed 3 February 2015.
4. Tejvan Pettinger, 2012, Current Account = Savings – Investment, EconomicsHelp.org, accessed 3 February 2015.