Final answer:
The U.S. economy's sources of finance are divided into internal (private savings) and external (foreign investments) sources, which align with the nation's demand for financial capital through private sector investment and government borrowing.
Step-by-step explanation:
In the U.S. economy, the main sources of finance can be categorized into two groups: internal and external sources. Internal sources, often referred to as private savings, encompass funds derived from within the economy itself, including individual and corporate savings. These internal savings are denoted by S in economic models. On the other side, external sources include financial capital that comes from outside the national economy, primarily through foreign investors. This foreign capital typically correlates with the country's trade deficit, which is mathematically represented as M (imports) minus X (exports).
Additionally, these financial sources correspond to two main avenues of financial capital demand. The private sector's demand for investment, represented by I, and government borrowing are the primary drivers. When government expenditures (G) exceed the taxes collected (T), government borrowing becomes necessary. The interaction between the supply and demand for financial capital in the U.S. economy can be summarized as the national savings and investment identity, a fundamental equation which helps to describe the flow of resources in the economy.