You visited us 0 times! Enjoying our articles? Unlock Full Access!
See Also
If planned savings are greater than planned investments, what will be its effect on inventories?State whether the following statements are true or false. Give valid reasons for your answers. i Unplanned inventories accumulate when planned investment is less than planned saving. ii Deflationary gap exists when aggregate demand is greater than aggregaFundamental Connection Between Saving and InvestmentConsumption and the Aggregate Expenditures Model: The Aggregate Expenditures Model: A Simplified View | Saylor AcademyQuestion
Open in App
Solution
Verified by Toppr
(i) When planned savings is more than planned investment, then the planned inventory would fall below the desired level. To bring back the Inventory to the desired level, the producers expand the output. More output means more income. A rise in output means a rise in I and a rise in income means a rise in S. Both continue to rise till they reach a point where S=I. (ii) When planned savings is less than planned investment, then the planned inventory rises above the desired level. To clear the unwanted increase in inventory, firms plan to reduce the output till S becomes equal to I.
Was this answer helpful?
2
