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Sem 5 Prep
← Money & BankingSaving, investment and the financial system

Formulas for this chapter

Private saving

Private saving = Y - T - C

When the question gives income, taxes and consumption. If it gives a deficit or surplus instead of taxes, get T out of that first.

Y
National income or GDP for the period
T
Tax revenue collected by the government
C
Household consumption spending

Public saving, surplus and deficit

Public saving = T - G Budget surplus = T - G Budget deficit = G - T = -(public saving)

Whenever the question mentions a surplus or a deficit. Convert it to public saving with the correct sign before using it anywhere else.

T
Tax revenue
G
Government purchases of goods and services

National saving

National saving = private + public = (Y - T - C) + (T - G) = Y - C - G

The short form Y − C − G is fastest, and it never needs taxes. Use the long form as the cross-check.

Y
National income or GDP
C
Household consumption
G
Government purchases

National income accounting identity

Y = C + I + G + NX Closed economy: Y = C + I + G, so I = Y - C - G Open economy: I = Y - C - G - NX

Read the question for the word closed. If the economy is open or NX is given, the closed-economy shortcut is wrong.

I
Investment, that is, spending on new capital
NX
Net exports: exports minus imports, negative for a trade deficit
Step 3 of 22
The real wordsTheory

Private saving

Households receive income Y. Two things leave before they can save: taxes T, and consumption C.

Private saving = Y - T - C
Private savingThe portion of households' income that is not used for consumption or paying taxes.

Notice the order in the words: consumption or paying taxes. Both are subtractions. Nothing else is.

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