Answer to Question #118667 in Macroeconomics for Karan Bhanot

Question

If the international flow of goods has an extended border ban across India, can national income savings become equal to investment? Explain properly within 100 words.

Answer 1

The ban of international flow of goods across India will result to increased demand and limited to almost no supply. This will result to disequilibrium in the market, In macroeconomics savings and investments don’t refer to savings and investment by an individual perspective but to the whole community. Decline in goods flowing, means there will be fall in actual investments and since savings will be in use, investments will decline to become equal to the lower/lowering savings. On the other hand, when planned savings are greater than planned investments within ban period, levels of income fall gradually. At lower income levels, less will be saved and thus national income savings can become equal to investments.