1. Non – spending out of disposable income is SAVING, whether in the bank, in the stock market, or under the mattress. Saving and Non – Available Output

2. Imagine an economy without government and without foreign trade. Sources of Income = Uses of Income C + I = C + S I = machines, factories, apartment buildings … things that are NOT – AVAILABLE for CONSUMPTION

3. Saving and Non – Available Output Thus C + S = I + C S = I Households are FORCED not to spend (i.e., to save) an amount equal to non-available output (i.e., investment), whether they put money in the bank or under the mattress If they want to spend more, they will only drive up the prices of available consumption goods (C) … until they decide to desist from more spending.

4. Saving and Non – Available Output In an economy with government and foreign trade C + I + G + NX = Y = T + S + C But I + G + NX = machines and missiles and merchandise sent abroad = things that are NOT AVAILABLE for CONSUMPTION

5. Saving and Non – Available Output Thus, S + T = I + G + NX Households are FORCED not to spend an amount equal to non-available output I + G + NX … whether by paying taxes or saving … whether they save by putting money in the bank or under the mattress If they try to spend more, they simply drive up the prices of available consumption goods … until they decide to desist from more spending