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Explain the relationship between saving and investment in the Keynesian model.

Explain the relationship between saving and investment in the Keynesian model.

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Ans. Keynes defined savings and investment in such a way that in his theory saving was always equal to the investment. This is also known as accounting equality. Keynes defined savings as the excess of income over consumption. Investment was the name given to any expenditure other than consumption and hence whatever was not consumed was saved. And whatever was saved was used for investment. Hence, according to Keynes, Savings = Investment in an equilibrium.

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