In economics, saving-investment balance or I-S balance is a balance of national savings and national investment, which is equal to current account. This relationship is obtained from the national income identity.
Description
This is the national income identity:
where
Y: GDP, C: national consumption, I: national investment, G: government spending, EX: export, IM: import, EX－IM: current account.
The national income identity can be rewritten as following:
where T is defined as tax. (Y-T-C) is savings of private sector and (T-G) is savings of government. Here, we define S as National savings (= savings of private sector + savings of government) and rewrite the identity as following:
This identity implies that the difference of national savings and national investment is equal to current account.