to the international flow of capital and goods in an economy. Before delving into the relationship between
these various components of an economy, you will be asked to recall some relationships between aggregate variables that will be useful in your
analysis.
Recall the components that make up GDP. National income (Y) equals total expenditure on the economy's output of goods and services. Thus, where
C= consumption, I = investment, G = government purchases, X = exports, M = imports, and NX = net exports:
Y
Also, national saving is the income of the nation that is left after paying for
saving (S) is defined as:
S =
?. Therefore, national
Rearranging the previous equation and solving for Y yields Y = Plugging this into the original equation showing the various components of
GDP results in the following relationship:
