Question

What are the main components of the national

savings and investment identity?

Short answer

the rate of GDP that is not spent in economy rather it is saved. National saving includes four main component

Step-by-step solution

Step 1.Introduction

The savings-investment identity is-

S + (M – X) = I + (G – T)

where,

S- Savings,

M- Imports,

X-Exports,

I- Investments,

G- Government Expenditure,

T- Taxes

Step 2. Savings

Savings include both household and business savings, It sis on supply side of financial capital. Savings by household increase with increase in income.

Step 3. Net exports

net exports , which means difference of exports of a country from imports of country in terms of money. As trade deficit leads to increased inflow of foreign capital hence it will comprise of supply.

Step 4. 

Investment made by private sector. It includes both household and corporate investments

Step 5. Government borrowing

Fourth and last component is government borrowing. The difference of government expenditure and taxation. As when expenditure exceeds receipts, government will borrow and constitute the demand of financial capital.