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Chapter 10: Q. 26 (page 266)

What are the two main sides of the national savings and investment identity?

Short Answer

Expert verified

Demand and supply of financial capital.

Step by step solution

01

Step1. Introduction

The savings-investment identity is-

S + (M – X) = I + (G – T)

where,

S- Savings,

M- Imports,

X-Exports,

I- Investments,

G- Government Expenditure,

T- Taxes

02

Step2. Explanation

The 2 main sides are supply and demand of financial capital.

Supply side includes- Savings and Trade deficit (as trade deficit leads to increased inflow of foreign capital hence it will comprise of supply)

Demand side includes- Investment, and the difference of government expenditure and taxation.

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Most popular questions from this chapter

What are the main components of the national savings and investment identity?

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What determines the size of a country’s trade deficit?

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