Answer to Question #285007 in Macroeconomics for kika

Question

2. If saving dropped sharply in the economy, what would likely happen to investment? Why?

Answer 1

Solution:

Investments will also drop since savings and investments are co-related.

 

Investment has a positive relationship with savings, which is part of the disposable income that is not consumed. Therefore, a reduction in savings in the economy will undoubtedly lead to a similar reduction in investment.