[1]: 174 In this simple economic model with a closed economy there are three uses for GDP (the goods and services it produces in a year).
The interest rate plays the important role of creating an equilibrium between saving S and investment in neoclassical economics.
Therefore the current account is split into exports and imports: The net exports is the part of GDP which is not consumed by domestic demand: If we transform the identity for net exports by subtracting consumption, investment and government spending we get the national accounts identity: The national saving is the part of the GDP which is not consumed or spent by the government.
Therefore the difference between the national saving and the investment is equal to the net exports: The government budget can be directly introduced into the model.
Therefore private saving in this model equals the disposable income of the households minus consumption: By this equation the private saving can be written as: and the national accounts as: Once this equation is used in Y=C+I+G+X-M we obtain By one transformation we get the determination of net exports and investment by private and public saving: By another transformation we get the sectoral balances of the economy as developed by Wynne Godley.