Real investment fixed capital investment or inventory investment. Difficulties in understanding the savings equals investment identity is often the result of mixing of these two concepts of investment.
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Further the novelty of keynes s approach to saving and investment equality lies in the belief that they can be equal at less than full employment.
Savings equal investment in economics. This shows that the total amount of savings occurring in the economy is equal to the amount being invested. So having high amounts of savings is good for economic growth. Keynes defined saving and investment in such a way that in his theory saving always equals investment.
Remember that investment leads to the accumulation of capital which leads to increased labor productivity which leads to economic growth which is a good thing. However at the higher level of income 600 planned saving exceeds planned investment resulting in planned expenditure failing below planned income. Investment in a barter economy.
With planned saving and investment being equal the economy is in a state of equilibrium there are no forces at work changing the level of output or income. Saving and investment equality saving always equals investment accounting equality. The formal definition of investment within economics corresponds to what i refer to here as real investment.
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