How to Calculate Private Saving
Private saving equals disposable income minus consumption, or Y − T − C, the part of after-tax income that households and firms hold back instead of spending.
The Private Saving formula
Calculator
Enter income, net taxes, consumption and government spending to get private saving, public saving and national saving.
Total income earned, the same figure as GDP in the national income identity.
Taxes collected minus transfer payments, not the tax bill on its own.
Household spending out of disposable income.
Only used for public saving and the national total.
Households and firms hold back $150B of after-tax income rather than spending it.
- Disposable income
- $800B
- Public saving
- $20B
- National saving
- $170B
- Private saving rate
- 18.75%
- Government budget
- Budget surplus
Income after net taxes is $800B, and every dollar of it is either consumed or saved.
Taxes exceed spending by $20B, so the government adds to the pool of saving.
Private plus public saving is $170B, the same answer as Y − C − G and the supply side of the loanable funds market.
18.75% of disposable income is saved, so the rest is the average propensity to consume.
Public saving is just the budget balance under another name, so a deficit drains national saving while a surplus feeds it.
How to calculate Private Saving, step by step
- 1Take national income. Start with total income Y, which is the same figure as GDP in the national income identity.
- 2Subtract net taxes. Net taxes T are taxes collected minus transfer payments, so Y − T is disposable income.
- 3Subtract consumption. Whatever is left of disposable income after spending is private saving, so private saving = Y − T − C.
- 4Work out public saving. Public saving is T − G. A positive answer means a budget surplus, and a negative one means the government is dissaving.
- 5Add the two for national saving. Private plus public saving is national saving, which simplifies to Y − C − G because the tax term cancels out.
Worked example: Private Saving
An economy has national income Y = $1,000 billion, net taxes T = $200 billion, consumption C = $650 billion, and government spending G = $180 billion. Disposable income is 1,000 − 200 = $800 billion, so private saving = 800 − 650 = $150 billion. Public saving = 200 − 180 = $20 billion, and national saving = 150 + 20 = $170 billion, matching Y − C − G = 1,000 − 650 − 180 = $170 billion. The private saving rate is 150 ÷ 800 = 18.75%.
Private Saving questions
What is the difference between private saving and national saving?
Private saving is what households and firms hold back out of disposable income. National saving adds public saving, the government's own surplus or deficit, on top of it.
Do business profits count as private saving?
Yes. Private saving covers households and firms together, so earnings a company retains rather than pays out are saved alongside household saving.
How does a tax increase change private saving?
Higher net taxes cut disposable income, and households absorb part of the hit by consuming less, so private saving falls by the MPS share of the tax rise rather than by the full amount.
Why does private saving matter in the loanable funds market?
Saving is the source of the supply of loanable funds, so more private saving shifts that supply right and pushes the real interest rate down.
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