The Structural Identities

1
The Structural Identities
In contrast to behavioralequations,
identitiesare true by definition
Income Consumption Saving a
Consumption ? ?Income
Which is the identity?
a True by definition for a closed economy w/o a
public sector, foreign sector, retained earning,
and where households do not invest
2
?We assume that net income earned abroad is equal
to zero.
Definitions
3
For a closed economy without government
4
Allowing for international flows of financial
capital, we have
S F FN ? I (G T) 8
Rearranging 8 to obtain
I G ? S T F FN 9