According to latest US government data, the personal saving rate jumped to 4.6% in June this year after settling at 0.4% in June last year.
According to the National Income and Product Accounts (NIPA), the saving rate is established as the ratio of personal saving to disposable income. Disposable income is defined as the summation of all personal money income, less tax and non-tax money payments to the government. Personal income includes wages and salaries, transfer payments, income from interest and dividends, and rental income.
Once we deduct personal monetary outlays from disposable money income, we get personal saving. Personal saving, then, is determined as a residual.
But is it valid to add all incomes in an economy in order to establish the so-called “national income?” Does the summation of money incomes equate with the true national income? Let us explore this point. FULL ARTICLE