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
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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