Question

Where Y is GDP, C is consumption, I is investment, G is government spending, T is net taxes, and there is no international trade, private saving equals?

Answer 1

PRIVATE SAVINGS = INVESTMENT

Step-by-step explanation:

Y = C + I + (G-T) , represents AD elements of - Households , Firms Government , Financial Sector (banks) .

In this model : Savings & Taxes are 'Leakages' from the circular flow (by financial & govt spending respectively) ; Investment & Govt spending are Injections into the Circular Flow ((by financial & govt spending respectively).

For consistency of Circular Flow : Leakages = Injections linked to a sector. Household Leakages 'Savings' (not spent) go into banks and Firms borrow from banks and inject it back into Economy in form of Investment .