© examsnet.com
Question : 17
Total: 49
If planned savings exceeds planned investments in an economy, explain its likely impact on income, output and employment.
Solution:
If Planned Savings exceed planned Investment or S > I, it means Aggregate Supply exceed Aggregate Demand (AS > AD)
A S > A D
C + S > C + I
OrS > I
Effect on output: With decrease in aggregate demand households and businesses prefer to save more of their incomes as a result goods will remain unsold with the producers and to clear the stocks producers will plan to cut down the production.
Effect on Employment: Plan to reduce output will lead to fall in employment level in the country.
Effect on Income: Retrenchment of employees will lead to fall in income level of the country.
Or
Effect on output: With decrease in aggregate demand households and businesses prefer to save more of their incomes as a result goods will remain unsold with the producers and to clear the stocks producers will plan to cut down the production.
Effect on Employment: Plan to reduce output will lead to fall in employment level in the country.
Effect on Income: Retrenchment of employees will lead to fall in income level of the country.
© examsnet.com
Go to Question: