Question

"It doesn't matter if savings exceeds planned investment because over time savings and planned investment will become equal." Do you agree? Explain.

Answer 1

In an economy, if planned saving is greater than or exceeds planned investment, that result in undesired build up of unsold stock, this means AD fall short of AS. as Aggregate supply > Aggregate demand, this resulting from the stock piling of unsold stock. I.e producer will cut down the employment and produce less as well, this will fall the national income as a result planned saving start falling and reached equal to planned investment. This is the point at which equilibrium level of income is determined.

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