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Question
What will happen to the level of circular flow of income in the following situation?
I > S
Short Answer
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Solution
When Investment (I) > Savings (S) in an economy, the circular flow of income will increase.
- More funds are being injected into the economy (through investment) than are being withdrawn (through savings).
- This increases the demand for goods and services.
- Firms respond by increasing production, leading to higher income and employment.
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