Savings Investment Economics

Is investment a zero sum game. They are unequal under conditions of disequilibrium.

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In a simple economic model we can say the level of saving will equal the level of investment.

Savings investment economics. Saving is that part of income which is not consumed and therefore not passed on in the income flow. Mod ern economists use the concepts of saving and investment in two different senses. Investment is the process of capital formation plus addition to stocks and therefore is an addition to the income flow.

As it is mentioned above that investments is a major component of aggregate demand ad if there is a rise in the investment it will help to increase ad and ultimately short run economic growth will occur. In a monetarist sense savings is the total rate at which units of account exceed expenditures and are accumulated as unit of account e g. In neo classical economics it is assumed that the level of saving will equal the level of investment.

Since income output savings investment for the total world s economy or for a hypothetical closed economy with zero foreign trade. Dollar balances with financial intermediaries. In one sense saving and investment are always equal equilibrium or no equilibrium.

If there is an increase in savings then banks can lend more to firms to finance investment projects. In the second sense saving and investment are equal only in equilibrium. This simple model system is affected by the existence of two complicating factors saving and investment.

In economics investment does not mean saving money into the bank. This is because investment is determined by available savings in the economy. If there is an extra capacity improved investment and an increase in ad will also raise the rate of economic growth.

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