I am trying to fully understand the savings-investment identity; both the Y=C+I+G=C+S+T and inventory accumulation perspectives make sense to me, but I came up with two examples that are a bit confusing and look like are maybe related to intermediate consumption.
Let's say that companies A and B pay employees A and B \$1 respectively, who each spend \$1 on final goods from company A, which spends $1 on X from company B.
If X = "The ordinary, regular maintenance and repair of fixed assets used in production" then it is intermediate consumption according to UNSNA and I would assume Y = C = \$2.
If X = "Major renovations, reconstructions, or enlargements of existing fixed assets enhancing their efficiency or capacity, or prolonging their expected working lives" then X is not intermediate consumption according to UNSNA. Is it then investment? This would mean C = \$2, I = \$1, Y = \$3. This checks out with the intuition that there is more "value added" here than in the first example. However this would require that S = \$1 and I don't see:
- Where does S come from? It looks to me like X is an investment that doesn't come from savings and I can't seem to fit it on any variant of the circular flow model
- employees' total salary is \$2 and I don't see a reason here why personal income should be different from national income in this case
Did I get the national income wrong?