Net Private Savings in Relation to the Government’s Financial Balance

Abstract

Looking at a national economy from both the income and expenditure sides, we get the following identity: 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 (7.1)). On the right-hand side of (7.1) we have private sector expenditures on consumption (CP) and that sector’s gross invest- ment (IP), government expenditure on goods and services (G), and RoW expenditure on the national economy’s exports (X). By simple rear- rangement, we get