Answer to Question #205568 in Macroeconomics for Akash

Question

Explain saving investment gap and its relation with budget defecit??

Answer 1

Savings investment gap refers to the deficit between current aggregate savings and level of saving required to provide funds for business investment. On the other hand, budget deficit occurs when expenses exceed income.

Savings investment gap negatively affects investments which leads to both decrease in export and tax revenues to be taken from these investments consequently impacting on the budget deficit. Policy makers therefore need to formulate policy that will increase savings rate.