<p>Your statement is not correct. Households spend current <span class="math-container">$Y$</span>. Past <span class="math-container">$Y_{t-1}$</span> was already spent so it can't be spent twice. Saving in all forms is also considered spending in macroeconomics, so even when households save money from previous years they are 'spending' that money using terminology in macroeconomics.</p>
<p>Moreover, since definitionally someones spending is someone else's income, when we talk about GDP it always has to be all spent in the year when it is created.</p>

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2024-01-21T21:20:00.463Z
2024-01-21T21:20:00.463Z
1muflon1
<p>Trying to understand idea of savings = investments.
Private savings formula is (for closed economy):
<span class="math-container">$$S=Y(GDP) - C - T$$</span>
which means &quot;income - private spendings&quot;.<br />
But households don't spend money they earned from <strong>Y</strong> , they spend money they earned from <span class="math-container">$$Y_{y-1}$$</span> where <em>y</em> is current year.
What do I miss here?</p>

<macroeconomics>
Why don't we use past year gdp for private savings
Vanconts
# Why don't we use past year gdp for private savings

(Asked by: username_0 on 2024-01-21)

Trying to understand idea of savings = investments.
Private savings formula is (for closed economy):
$$S=Y(GDP) - C - T$$
which means "income - private spendings".  
But households don't spend money they earned from **Y** , they spend money they earned from $$Y\_{y-1}$$ where *y* is current year.
What do I miss here?

**Tags:** macroeconomics


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## 1 answers

### Answer by username_1 on 2024-01-21. Score: 0 | Accepted answer

Your statement is not correct. Households spend current $Y$. Past $Y\_{t-1}$ was already spent so it can't be spent twice. Saving in all forms is also considered spending in macroeconomics, so even when households save money from previous years they are 'spending' that money using terminology in macroeconomics.

Moreover, since definitionally someones spending is someone else's income, when we talk about GDP it always has to be all spent in the year when it is created.


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