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We said in the national income accounts, S = I, savings must equal investment; it is...

We said in the national income accounts, S = I, savings must equal investment; it is an identity. Does this mean that actual investment is the same thing as planned investment? Briefly explain why or why not

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Answer #1

S = I means that savings is equal to actual investment.

Actual investment is different than planned investment. It may be less than, equal to or greater than planned investment. Planned investment is what hte producers plan to invest in a particular time period. Actual investment is what ends up being invested. The difference is planned investment and actual investment is due to rise or fall in inventories. When actual investment is greater than planned investment, there is a rise in inventories. When actual investment is lower than planned investment, there is a fall in inventories.

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