Question

In an economy planned saving exceeds planned investment. How will the equality between the two be achieved? Explain.

Answer 1

When planned savings is more than planned investment , then the planned inventory would fall below the desired level. To bring back the Inventory at the desired level, the producers expand the output More output means more income. Rise in output means rise in I and rise in income means rise in S. Both continue to rise till they reach a point where S=I.