Answer to Question #118835 in Macroeconomics for Karan Bhanot

Question

Why in closed economy investment=saving? Explain in 100 words

Answer 1

Correct answer is:

The reason as to why investment equals savings in the closed economy model is because the growing capital stock is not the only item taken into account for investment there is inventory accumulation too.In macroeconomics, investment is the amount of goods produced or purchased per unit time and are not consumed at the moment. This means that investment is the amount of goods saved for future use which by definition is savings also.They are the same concepts but expressed in different vocabulary. There is no unplanned inventory since spending and production are the same in this model.