562PART NINETHE REAL ECONOMY IN THE LONG RUNBecause a closed economy does not engage in international trade, imports andexports are exactly zero. Therefore, net exports (NX) are also zero. In this case, wecan writeYCIG.This equation states that GDP is the sum of consumption, investment, and gov-ernment purchases. Each unit of output sold in a closed economy is consumed, in-vested, or bought by the government.To see what this identity can tell us about financial markets, subtract Cand Gfrom both sides of this equation. We obtainYCGI.The left-hand side of this equation (YCG) is the total income in the economythat remains after paying for consumption and government purchases: Thisamount is called national saving,or just saving,and is denoted S.SubstitutingSfor YCG,we can write the last equation asSI.This equation states that saving equals investment.To understand the meaning of national saving, it is helpful to manipulate thedefinition a bit more. Let T
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