Savings and Taxes. When there are taxes, savings is defined as disposable income minus consumption, or S = (y - T) - C. In an economy with government but no foreign sector—a closed economy—equilibrium...

Savings and Taxes. When there are taxes, savings is defined as disposable income minus consumption, or S = (y - T) - C. In an economy with government but no foreign sector—a closed economy—equilibrium income is determined where output equals demand, or y = C + I + G. Show that we can also determine equilibrium income using the relationship S + T = I + G.