<p>The <span class="math-container">$I$</span> is actually not just capital spending. In some models that might be true, for example, in Solow growth model we will assume that all investment is capital spending but <span class="math-container">$I$</span> is not just that.</p>
<p>For example, <span class="math-container">$I$</span> would include both purchases of <em>new</em> houses (although argument could be made they are capital goods, they would not satisfy more narrower definitions requiring that capital being factor of production), or investment in inventory for example (see more detailed explanation in Blanchard et al. Macroeconomics: a European Perspective, pp 41-43).</p>
<p>Also, <em>spending</em> on capital good is literary considered saving in economics. In economics saving has more broad meaning than what ordinary people just consider 'saving'. For example, in economics when you buy stocks you are also saving even if you spend money doing so.  In economics by definition the portion of income that is not consumed is saving (see ibid. Macroeconomics: a European Perspective pp 569-570).</p>
<p>PS: As pointed in the comments, you should have minus in front of <span class="math-container">$C$</span> so the equation should be: <span class="math-container">$ Y-G-C = I+NX$</span>.</p>

CC BY-SA 4.0
2020-12-12T19:46:38.283Z
Yup. Typo corrected thanks!

 _In economics by definition the portion of income that is not consumed is saving (see ibid. Macroeconomics: a European Perspective pp 569-570)_. - Good point. 

When I try and talk it through to myself I always make the leap that any money spent (not on financial products like shares/bonds etc.)  = consumption.
Studi
CC BY-SA 4.0
2020-12-12T10:41:26.013Z
2020-12-12T10:41:26.013Z
1muflon1
<p>I understand
Y-G-C = I+NX = Savings . The equation that we see everywhere in economic textbooks. I see the mathematical logic.</p>
<p>BUT</p>
<p>Given that I = capital investment in GDP accounting surely Savings are what is not spent after you haven't spent anything on capital goods etc. So in my head
Y-G-C-I = NX = S and infact why not take NX over to the other side!</p>
<p>What &quot;mistake&quot; am I making here?
I can regurgitate the textbooks and get the marks but I just don't understand it for myself from first principles.</p>

CC BY-SA 4.0
2020-12-12T07:48:02.907Z
Should you not have a negative sign in front of C?
Jesper Hybel
CC BY-SA 4.0
2020-12-12T16:02:17.723Z
Does this answer your question? [How does investment have a negative impact on the current account (trade balance)?](https://economics.stackexchange.com/questions/29804/how-does-investment-have-a-negative-impact-on-the-current-account-trade-balance)
develarist
CC BY-SA 4.0
2020-12-12T19:41:30.803Z
Yup, you're right Jesper!
Y-G-C-=I+NX
Doh!
Studi
<macroeconomics><gdp><open-economy-macro>
Connection between saving and investments-Y=C+I+G+NX
Studi
# Connection between saving and investments-Y=C+I+G+NX

(Asked by: username_0 on 2020-12-12)

I understand
Y-G-C = I+NX = Savings . The equation that we see everywhere in economic textbooks. I see the mathematical logic.

BUT

Given that I = capital investment in GDP accounting surely Savings are what is not spent after you haven't spent anything on capital goods etc. So in my head
Y-G-C-I = NX = S and infact why not take NX over to the other side!

What "mistake" am I making here?
I can regurgitate the textbooks and get the marks but I just don't understand it for myself from first principles.

**Tags:** macroeconomics, gdp, open-economy-macro
> **Comments:**
> **username_1**: Should you not have a negative sign in front of C?  
> **username_2**: Does this answer your question? [How does investment have a negative impact on the current account (trade balance)?](https://economics.stackexchange.com/questions/29804/how-does-investment-have-a-negative-impact-on-the-current-account-trade-balance)  
> **username_0**: Yup, you're right Jesper! Y-G-C-=I+NX Doh!  

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## 1 answers

### Answer by username_3 on 2020-12-12. Score: 0

The $I$ is actually not just capital spending. In some models that might be true, for example, in Solow growth model we will assume that all investment is capital spending but $I$ is not just that.

For example, $I$ would include both purchases of *new* houses (although argument could be made they are capital goods, they would not satisfy more narrower definitions requiring that capital being factor of production), or investment in inventory for example (see more detailed explanation in Blanchard et al. Macroeconomics: a European Perspective, pp 41-43).

Also, *spending* on capital good is literary considered saving in economics. In economics saving has more broad meaning than what ordinary people just consider 'saving'. For example, in economics when you buy stocks you are also saving even if you spend money doing so. In economics by definition the portion of income that is not consumed is saving (see ibid. Macroeconomics: a European Perspective pp 569-570).

PS: As pointed in the comments, you should have minus in front of $C$ so the equation should be: $ Y-G-C = I+NX$.

> **Comments:**
> **username_0**: Yup. Typo corrected thanks!   _In economics by definition the portion of income that is not consumed is saving (see ibid. Macroeconomics: a European Perspective pp 569-570)_. - Good point.   When I try and talk it through to myself I always make the leap that any money spent (not on financial products like shares/bonds etc.)  = consumption.  

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