Advertisements
Advertisements
Question
What will happen to the level of circular flow of income in the following situation?
S > I
Short Answer
Advertisements
Solution
When Savings (S) > Investment (I) in an economy, it leads to a decline in the level of circular flow of income. Here's why:
- More income is being withdrawn from the economy (as savings) than is being injected back (as investment).
- This reduces overall demand for goods and services.
- Firms may respond by reducing production, leading to lower income and employment.
shaalaa.com
Is there an error in this question or solution?
