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Theoretically prove that savings equals investment in a closed economy.

Theoretically prove that savings equals investment in a closed economy.

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Answer #1

There are two views regarding the equilibrium of savings and investment.

Ex-ante saving and investment

Ex-ante saving refers to the amount of savings which households plan to save at different levels of economy.

Ex-ante investment refers to amount investment which firm plan to investment different level of income in the economy.

Equilibrium condition

Ex-ante saving and=Exa ante Investment the economy will achieve the equilibrium at different level of the income

Ex-post saving and Ex-post Investment

Ex-post saving refers to actual saving in the economy during the year

Ex-post investment to actual investment refers to the economy during the year.

The equilibrium conditions

Ex post-Saving=Ex post-Investment the economy always in the equilibrium in the economy

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