Principles of Macroeconomics / Unit 7 MAC 0608 short lesson, about 20 seconds
The Saving and Investment Identity
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The idea
The national saving and investment identity says the supply of financial capital equals the demand for it. Private saving plus the inflow from abroad equals private investment plus government borrowing.
In practice
The inflow from abroad is the trade deficit, imports minus exports.
Where people slip
Terms switch sides when signs change. A budget surplus makes government a supplier of capital rather than a borrower.
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