The national income identity can be rearranged to show that private saving + government saving+ foreign saving = investment.

Question

Quizplus · Accepted Answer

This is a true statement. The national income identity states that Y=C+I+G+NX, where Y is national income, C is consumption, I is investment, G is government spending, and NX is net exports (exports - imports). Rearranging this equation, we get I=Y-C-G-NX. Substituting private saving (S1=C-T) and government saving (S2=T-G) for C-G, we get I=Y-S1-S2-NX. Since NX can be written as (IM-EX), where IM is imports and EX is exports, we can further rewrite the equation as I=(Y-C-G)+(IM-EX)=S1+S2+(IM-EX). This shows that investment equals total savings (private saving plus government saving) plus foreign saving (net exports).

The National Income Identity Can Be Rearranged to Show That