How to Calculate National Saving
National saving equals private saving plus public saving: S = (Y − T − C) + (T − G) = Y − C − G, and in a closed economy S = I.
The National Saving formula
Calculator
Enter income, taxes, consumption, and government spending to split national saving into its private and public parts.
Private plus public saving, which equals Y minus C minus G.
- Private saving
- $3
- Public saving
- −$1
- Investment (closed economy)
- $2
Y minus T minus C: what households keep after taxes and spending.
T minus G. Negative means a budget deficit.
With no foreign sector, S = I.
How to calculate National Saving, step by step
- 1Find private saving. Private saving is disposable income minus consumption: Sp = Y − T − C, where Y is national income, T is net taxes, and C is consumption.
- 2Find public saving. Public saving is tax revenue minus government spending: Sg = T − G. It is negative whenever the government runs a budget deficit.
- 3Add private and public saving. National saving is the sum of the two: S = Sp + Sg = (Y − T − C) + (T − G), which simplifies to S = Y − C − G. The private saving page walks through Sp and Sg individually in more depth; from here it is just addition.
- 4Apply S = I in a closed economy. With no borrowing from or lending to the rest of the world, every dollar saved must be borrowed by someone investing it, so national saving equals investment: S = I.
Worked example: National Saving
Suppose Y = $20 trillion, T = $3 trillion, C = $14 trillion, and G = $4 trillion. Private saving = 20 − 3 − 14 = $3 trillion. Public saving = 3 − 4 = −$1 trillion, so the government is running a budget deficit. National saving = 3 + (−1) = $2 trillion, which matches the shortcut Y − C − G = 20 − 14 − 4 = $2 trillion. In a closed economy, investment must also equal $2 trillion.
How a deficit shows up in the loanable funds market
A budget deficit means the government spends more than it collects in tax revenue, so it has to borrow to cover the gap. That borrowing does not add to demand for loanable funds; demand comes from businesses borrowing to finance investment. What a deficit actually changes is how much saving the government itself contributes to the market.
Public saving is Sg = T − G, and a deficit pushes G above T, so Sg turns negative. National saving is private saving plus public saving, so a more negative Sg pulls national saving down, and national saving is exactly what supplies the loanable funds market. A bigger deficit therefore shifts the supply curve for loanable funds to the left, not the demand curve to the right; mixing up which curve moves is one of the most common mistakes on this topic.
At the original interest rate, quantity supplied now falls short of quantity demanded, so the real interest rate rises until the market clears again. That higher rate raises the cost of borrowing for firms, so some investment projects that were profitable at the old rate no longer are, and the resulting decline in private investment is called crowding out. The higher rate does pull a little more private saving into the market as savers move along the new supply curve, but not enough to offset the drop in public saving, so a bigger deficit typically leaves both national saving and investment lower than they would have been otherwise.
National Saving questions
What is the difference between private saving and public saving?
Private saving is what households and businesses do not spend on consumption out of disposable income: Sp = Y − T − C. Public saving is the government's own saving, tax revenue minus government spending: Sg = T − G. National saving adds the two together.
How does a budget deficit affect national saving?
A budget deficit means Sg = T − G is negative, since government spending exceeds tax revenue. That subtracts from private saving when the two are combined, so national saving falls unless private saving rises enough to make up for it.
Why does S = I only hold in a closed economy?
A closed economy has no borrowing from or lending to the rest of the world, so every dollar saved domestically must be borrowed by a domestic investor, giving S = I. An open economy can also draw on foreign saving or send saving abroad, so the identity becomes S = I plus net capital outflow.
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