Saving

Recall the income-expenditure identity Y = C + I + G + NX from national-accounting, this doesn’t mean that every group eats exactly the same piece of the pie that they got as an income stream.

Notion of saving: the difference between a group’s income and its expenditures.

GDP, GNP, and NFP: GNP = GDP + NFP

Definition: S = Y + NFP - C - G.

Can derive: S = I + NX + NFP = I + CA (CA = NX + NFP = Current Account surplus)

Saving is a flow variable!

Two ways to accumulate wealth:

• I: Investment into building up the capital stock of an economy (Gross Capital Formation)
• CA: Acquiring claims against foreigners, against their GDP in the future.