The savings investment identity is an important concept in macroeconomics that shows the relationship between total savings and total investment in an economy. It states that total savings must equal total investment. This has implications for understanding business cycles, economic growth, and the impact of policy decisions. To fully grasp the savings investment identity, it is helpful to review the background and derivation of the identity from national income accounting identities.
Derivation of the savings investment identity
The savings investment identity can be derived from the basic national income accounting identities…
Relationship between savings and investment
The identity shows that savings and investment must move together in the economy over time…
In summary, the savings investment identity is a key macroeconomic relationship showing that total savings always equals total investment in the economy. Understanding factors that influence savings and investment can provide insight into macroeconomic performance.