Author Question: Explain how savings equals investment in a closed capitalist economy? What will be an ideal ... (Read 88 times)

jrubin · **on:** Jun 30, 2018

Explain how savings equals investment in a closed capitalist economy?

What will be an ideal response?

Question 2

Perishable goods such as milk or fruit are never used as money, because they cannot function as a

A) store of value. B) unit of accounting.
C) standard of deferred payment. D) medium of exchange.

Li Jun · **Reply #1 on:** Jun 30, 2018

Answer to Question 1

The national income identity is given by Y = C + I + G + NX, where, C is the consumption expenditure, I is the investment expenditure, G is the Government Spending, and NX is the net exports. In a closed capitalist economy, Y = C + I. In other words, GDP is the sum of aggregate consumption expenditure and investment. It is also true, that in a closed economy without government spending, all the income generated will be either consumed or saved. Hence, Y = C + S. Since Y = C + S = C + I S = I.

Answer to Question 2

A