How is equality of saving and investment in economy ensured

Assignment Help Microeconomics

Reference no: EM13897637

"From the time of Say and Ricardo the classical economists have taught us that the supply creates its own demand ... (and) that an individual act of abstaining from consumption necessarily leads to ... the commodities thus released ... to be invested ... so that an act of individual saving inevitably leads to a parallel act of investment ... Those who think this way are deceived.

They are fallaciously supposing that there is a nexus which unites decisions to abstain from consumption with decisions to provide for future consumption, whereas the motives which determine the latter are not linked with the motives which determine the former." (Keynes, 1936, pp. 18-21). Explain this statement.

If investment and saving depend on different determinants, what are these determinants and how is the equality of saving and investment in the economy ensured? Or does it also become an identity? If it is not an identity, outline the possible scenario of the likely adjustment pattern in the economy following an exogenous decrease in consumption.

Reference no: EM13897637

Questions Cloud

Are leaders born or can they be made why or why not : Create a 3- to 4-slide Microsoft PowerPoint presentation with detailed speaker notes in which you address the following question - Are leaders born or can they be made? Why or why not

How will political turmoil affect political risk in egypt : Web Question: How will the political turmoil in a number of Middle East countries in early 2011, such as Egypt, affect political risk? Try to use Web resources on ratings and spreads to come up with a quantitative answer.

Is effect on interest rates less or greater : Suppose the central bank pegs the price level by using money supply changes through open market operations. Present the IS-LM analysis incorporating this money supply rule and show the implications for the money supply, aggregate demand and output..

How licensing royalties fees affect value of foreign project : How do licensing agreements, royalties, and overhead allocation fees affect the value of a foreign project? Why does an adjusted net present value analysis treat the present value of financial side effects as a separate item?

How is equality of saving and investment in economy ensured : They are fallaciously supposing that there is a nexus which unites decisions to abstain from consumption with decisions to provide for future consumption, whereas the motives which determine the latter are not linked with the motives which determi..

What is interest subsidy and how do you calculate its value : What is an interest tax shield? How do you calculate its value? What is an interest subsidy? How do you calculate its value? What are growth options? Provide an example of one in an international context.

What processes will take the economy to these levels : Suppose that business pessimism reduces investment such that aggregate demand becomes less than full employment income at all non-negative rates of interest.-What processes will take the economy to these levels?

What is the difference between ebit and noplat : What is the difference between EBIT and NOPLAT? Why is it important to understand and manage net working capital? What does CAPX mean, and why is it a firm's engine of growth?

User Account

All Pages