Savings measurement and use

1. PRESENTATION ON SAVING
GENERAL OBJECTIVE
The student should be able to explain why savings is important in an
economy
By the end of this presentation, the student will be able to;
i. define saving
ii. explain the three measures of saving
iii. explain at least two uses of saving
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2. SAVINGS
Saving of any individual or economic unit is defined as the unit of current
income minus spending on current needs. Thus
Saving = Income (Y) – Consumption (C)
Therefore saving rate of an economic unit is simply its savings divided by
its income ie (
𝑆
𝑌
)
MEASURES OF SAVINGS
From macroeconomic point of view, there are three important measures of
savings. These are;
Private saving
Government saving and
National saving
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3. Private Saving (Spvt)
• This is the saving by the private sector
• It equals private disposable income (Yd) minus consumption (C)
• Spvt = private disposable income – consumption. Generally;
• Spvt = Y + NFP + TR + INT – T – C NB: Yd = Y –T where;
• Y = gross domestic product
• NFP = net factor payment from abroad
• TR = transfer received from the government
• INT = interest payment on government debts
• T = taxes
• C = consumption
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4. Government Saving (Sgovt)
This in the net government income minus government purchases. That
is
Government savings = government receipts(T) – government
outlays(expenditure)
Sgovt = T – G – TR – INT where;
T = taxes received by government
G = government expenditure
TR = transfers received from government
INT = interest payment on government debts
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5. GOVERNMENT BUDGET SURPLUS OR
DEFICIT
• Budget surplus or deficit is the same as government saving.
Ie
• Government budget surplus occurs when govt receipts(taxes)
are more than its outlays or expenditure. Ie Sgovt is positive
Also
• Government budget deficit occurs when govt receipts(taxes)
are less than its outlay or expenditure. Ie Sgovt is negative
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6. NATIONAL SAVING (NS)
This is private saving + government saving. Thus
NS = Spvt + Sgovt
NS = (Y + NFP + TR + INT – T – C) + (T – G – TR – INT )
NS = Y + NFP – C – G. But Y + NFP = GNP therefore
NS = GNP – C – G
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7. USES OF SAVING
Private saving in an economy is put into three
main uses;
a. To finance investment
b. To finance budget deficit
c. To finance current account deficit
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8. CURRENT ACCOUNT BALANCE
 Ghana’s current account balance can be positive or negative;
When current account is positive, it means foreigners
receipts of payments from Ghana are less than payments
Ghanaians receive from foreigners
 When current account is negative, it means foreigners
receipts of payments from Ghana are more than payments
Ghanaians receive from foreigners’
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9. USES OF SAVING cont’
Closed Economy Without Govt,
• From income identity perspective, saving equals total income Y minus
consumption C. Also from expenditure identity perspective, total output Y
is consumption(C) + investment (I).
• S = Y – C ie Y = S + C……..……..(1)
• Y = C + I ……………(2)
• Equating eqn 1 and 2 gives;
• Saving S = investment I
• Hence private saving is used to finance investment.
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10. USES OF SAVING cont’
Closed Economy With Government
From income and expenditure perspectives;
Y = S + C+ T …………..(1)
Y = C + I + G …………..(2)
Equating eqn 1 and 2 gives
S +C + T = C + I + G. this implies I = S + T – G ie S = I + G - T
 Hence saving finances both investment and government budget
deficit.
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11. USES OF SAVING cont’
Open Economy
From income and expenditure identity perspectives;
Y = S + C+ G + NFP …………..(1)
Y = C + I + G + NX …………..(2)
Equating eqn 1 and 2 gives
S +C + G + NFP = C + I + G + NX. this implies S = I + NX + NFP.
But NX + NFP = Current Account
 Hence saving finances both investment and current account deficits
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12. CONCLUSION
When govt budget deficit increases, one or a combination of these
should happen
a) Private savings must rise and/or
b) Investment must fall and/or
c) Current account balance must fall
When Ghana’s current account balance is positive, foreigners would
have to borrow from Ghana or sell their assets to Ghana
When the current account is negative, Ghanaians would have to
borrow from foreigners or sell their assets to foreigners
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13. WEALTH, STOCK AND FLOWS
A nation’s wealth is the difference between her assets and liabilities. It
is of two type. It can be;
a. Its domestic physical assets such as capital goods or land
b. Its net foreign assets
Stock variables are defined or measured at a point in time, eg the total
housing stock in Ghana on census night ie 27th June, 2021.
A flow variable on the other hand is the rate of change in the stock, eg
the rate of saving to accumulate wealth.
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14. THANK YOU
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