McqMate
| Q. |
Investment and savings are kept equal through a change in the level of - |
| A. | Consumption |
| B. | Investment |
| C. | Government expenditure |
| D. | Income |
| Answer» A. Consumption | |
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Explanation: Desired savings are kept equal to desired investment by responses to interest rate changes. Savings identity or the savings investment identity is a concept in National Income Accounting stating that the amount saved (S) in an economy will be amount invested (I). This identity only holds true because investment here is defined as including inventories. Thus, should consumers decide to save more, and spend less, the fall in demand would lead to an increase in business inventories. The change in inventories brings savings and investment into balance without any intention by business to increase investment. |
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