Introduction to Finance

savings surplus unit
is an economic unit that generates savings. These surplus 
savings are made available to savings defi cit units. For example, business fi rms as a group 
are often unable to meet all their plant and equipment investment needs out of 
undistributed 
profi ts
or earnings retained in the business, which are profi ts remaining after taxes and, in 
the case of corporations, after the cash dividends are paid to stockholders. A 
savings defi cit 
unit
is an economic unit with income less than its expenses, taxes, and real asset investments, 
making it necessary to acquire funds from a savings surplus unit.
Personal Savings
An important savings sector in the economy is the savings of individuals called 
personal 
saving
. In equation form, we have,
Personal saving = personal income – personal current taxes – personal outlays (7.2)
economic unit savings 
occur when 
an economic unit’s income exceeds 
its expenses, taxes, and real asset 
investments
savings surplus unit 
an economic 
unit that generates savings
undistributed profi ts 
proportion 
of after-tax profi ts retained by 
corporations
savings defi cit unit 
an economic 
unit with income less than its 
expenses, taxes, and real asset 
investments
personal saving 
savings of 
individuals equal to personal 
income less personal current taxes 
less personal outlays 

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7.3 Role and Major Sources of Savings
175
Personal income includes compensation of employees, personal income with capital con-
sumption adjustment, personal interest and dividend income, and net government social bene-
fi ts to individuals. Personal income less personal current taxes equals disposable personal 
income. Then, subtracting personal outlays (primarily personal consumption expenditures) 
equals personal saving. Technically, personal nonmortgage interest payments and personal 
transfer payments made to the government are also personal outlays.