If that money is in a bank, the $500 is invested by the bank (i.e: given as loans to other individuals or businesses, who use the money for investment). If the money is in cash and at your home, then indeed it is not used.
@@TheMoonIsAConspiracyTheory It's fine I get it now. Investment has 2 definitions: "actual" and "ex-ante". The actual investment includes all goods produced but not consumed which means that everytime you save $1, $1 worth of inventory stock remains unpurchased. In that case S= I all the time. In the second definition "Investment" is defined such that inventory stock is not included, the traditional sense of the term.
@@ideaaddict923 I don't think you are right. If you bury your cash, your cash is neither considered to be saving or investment because in the gdp formula, we only count in a money provided a exchange transaction happened. So your saving under your bed cause nothing to the S=I but you may get the $1 from a transaction, for eg, u provide a haircut service to get that 1, then at the time the exchange transaction happened, consumption c +1, and saving -1, thus investment -1. In another say, the person who buy this haircut service to you cause his saving and the total possible investment in the whole economy to reduce by 1, thus S= I maintains true. This is consistent to our common sense. or u can imagine a situation where all people suddenly went crazy and bury all their money and no spend it. then the total saving and investment in our society will become zero, where S=I become 0=0. Or oppositely thinking, if bury money also cause saving and investment to increase as in your definition, then if everyone suddenly bury all their money, the society seems no problem at all, which is very absurb. Intuitively speaking, this saving as in S=I is those savings already used for investment instead of savings to be used for investment. The reason that the statistical apartments like to measure savings in bank ( which is savings to be used for investment) is because those savings ultimately will become savings already used, so it is a good estimation or leading indicators to show us what the future investment potential of the society is like. Another aspect to see this things is when the explainer used personal banking as analogy. In this analogy, if we save $100 to bank, we can invest up to $100.. Note that in this analoy, the S=I only with the condition that all the $100 savings are spent by bank to loan out. If bank keep some reserve or we imagine the bank totally keep the cash unused, then isn't the saving =100 but investment =0? But if assume saving is defined as Savings that already used for investment, then we will see no such conflict in this analogy.
Somebody tell me please why S = Y - C - G and not S = Y - I - C - G. because I - it's also spendings. If you have money you can divide it on consumption, investments and savings. It's only me who can't understand this moment?
So if investment = savings, why would investment fall when interest rates increase? Surely by this logic higher interest rates means more savings and therefore investment would also hace to rise
Because the opportunity cost for investment increases. Example: If the current interest rate was 1% and the expected return of an investment was 10%, investing you're money might be an easy choice because you could earn so much more. But if the interest rate increases up to 9%, investing you're money doesn't look to good anymore. Why take the risk of investing just to earn a little more when you can earn almost the same amount just saving. Investment=saving is like the supply=demand expression, it is valid at equilibrium.
Could anyone help me knowing, what if instead of depositing one's money in bank one kept their saving in their home Will it still be considered as an investment if yes/no why?
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Please someone help. I see the algebra. fine. How does that make sense in the real world though. If i save £500 and dont spend it, how is it invested?
If that money is in a bank, the $500 is invested by the bank (i.e: given as loans to other individuals or businesses, who use the money for investment). If the money is in cash and at your home, then indeed it is not used.
@@TheMoonIsAConspiracyTheory It's fine I get it now. Investment has 2 definitions: "actual" and "ex-ante". The actual investment includes all goods produced but not consumed which means that everytime you save $1, $1 worth of inventory stock remains unpurchased. In that case S= I all the time. In the second definition "Investment" is defined such that inventory stock is not included, the traditional sense of the term.
@@ideaaddict923 Right, makes sense. Inventory stock is something I didn't think about. Good catch.
@@ideaaddict923 I don't think you are right. If you bury your cash, your cash is neither considered to be saving or investment because in the gdp formula, we only count in a money provided a exchange transaction happened. So your saving under your bed cause nothing to the S=I but you may get the $1 from a transaction, for eg, u provide a haircut service to get that 1, then at the time the exchange transaction happened, consumption c +1, and saving -1, thus investment -1. In another say, the person who buy this haircut service to you cause his saving and the total possible investment in the whole economy to reduce by 1, thus S= I maintains true. This is consistent to our common sense. or u can imagine a situation where all people suddenly went crazy and bury all their money and no spend it. then the total saving and investment in our society will become zero, where S=I become 0=0. Or oppositely thinking, if bury money also cause saving and investment to increase as in your definition, then if everyone suddenly bury all their money, the society seems no problem at all, which is very absurb. Intuitively speaking, this saving as in S=I is those savings already used for investment instead of savings to be used for investment. The reason that the statistical apartments like to measure savings in bank ( which is savings to be used for investment) is because those savings ultimately will become savings already used, so it is a good estimation or leading indicators to show us what the future investment potential of the society is like. Another aspect to see this things is when the explainer used personal banking as analogy. In this analogy, if we save $100 to bank, we can invest up to $100.. Note that in this analoy, the S=I only with the condition that all the $100 savings are spent by bank to loan out. If bank keep some reserve or we imagine the bank totally keep the cash unused, then isn't the saving =100 but investment =0? But if assume saving is defined as Savings that already used for investment, then we will see no such conflict in this analogy.
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Some segments in the video are stamped not adjacent to each other
But with fractional reserve system investments > national saving
I love this guy's intro... In this video lol
Somebody tell me please why S = Y - C - G and not S = Y - I - C - G.
because I - it's also spendings. If you have money you can divide it on consumption, investments and savings.
It's only me who can't understand this moment?
No, investment is equal to savings. Therefore S=Y-C-G=I.
@sergey Ignatenkov here investment doesnt mean what we generally use in share market etc..its the amount of capital manufactured in country
So if investment = savings, why would investment fall when interest rates increase? Surely by this logic higher interest rates means more savings and therefore investment would also hace to rise
Because the opportunity cost for investment increases. Example: If the current interest rate was 1% and the expected return of an investment was 10%, investing you're money might be an easy choice because you could earn so much more. But if the interest rate increases up to 9%, investing you're money doesn't look to good anymore. Why take the risk of investing just to earn a little more when you can earn almost the same amount just saving. Investment=saving is like the supply=demand expression, it is valid at equilibrium.
Could anyone help me knowing, what if instead of depositing one's money in bank one kept their saving in their home Will it still be considered as an investment if yes/no why?
I had the same question. What about the 10% banks are required to hold also? So even if I put it in a bank, only 90% of that can truly be invested.
How do we calculate size of the public sector when given