Question

Please use two economic concepts. Thank u.

What's the relationship between savings and investment? What's the relationship between investment and economic growth?

Answer 1

There are various factors which lead to economic growth. Two of them are savings and investments Savings and Investment Savings is the process keeping some portion of current income aside for some future use Investment is the amount that is spent on goods and services but not consumed in the present time period There is a direct relationship between savings and investment, that is, higher the level of savings, higher the level of investment spending in the economy In a 2-sector economy, equilibrium is achieved when the income received by all individuals is equal to expenditure on the goods and services produced Expenditure,Y = C + I Income,Y C+S At equi, Expenditure Income C I CS The equation above explains the direct relationship, that is, when one goes up, the other must go up to be in identity Thus, at equilibrium, Savings must equal investment spending.

Investment and economic growth Investment is the amount that is spent on the process of production (like machinery, plant, equipment etc.) Economic growth is the rise in the production of goods and services per capita There is a direct relationship between investment and economic growth, that is, higher the level of investment, higher the economic growth is. An increase in investment will increase the Aggregate Demand in the economy which will increase the production of goods and services and hence, economic growth So, these three terms jare total related to each other. Higher the level of savings leads to higher level of investment and higher level of investment leads to higher level of economic growth TEconomic Growth Savings Investment »