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]
-
Y
=
C
+
I
+
G
+
(
E
X
−
I
M
)
{\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]
-
(
Y
−
T
−
C
)
+
(
T
−
G
)
−
I
=
E
X
−
I
M
{\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:
-
S
−
I
=
E
X
−
I
M
{\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
References
- Christiano, 2003, Rough Notes on National Income Accounting and the Balance of Payments, Northwestern University, p.1.
- Christiano, 2003, Rough Notes on National Income Accounting and the Balance of Payments, Northwestern University, p.3.
- IMF publishment, 2006, Do Current Account Deficits Matter?, accessed 3 February 2015.
- Tejvan Pettinger, 2012, Current Account = Savings – Investment, EconomicsHelp.org, accessed 3 February 2015.