Saving investment balance - Alchetron, the free social encyclopedia

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:

Y = C + I + G + ( E X − I M )

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:

( Y − T − C ) + ( T − G ) − I = E X − I M

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

This identity implies that the difference of national savings and national investment is equal to current account.

References

Saving-investment balance Wikipedia

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