Which statement best characterizes the classical economists' view of saving and investment?
A) Saving equals investment.
B) Saving exceeds investment.
C) Saving is less than investment.
D) Saving and investment are not related to one another.

Question

Quizplus · Accepted Answer

Classical economists believed that saving and investment are equal in equilibrium in the economy. This means that any excess saving beyond what is needed for consumption will be channeled into investment, leading to economic growth. This idea is represented in the national income accounting identity: Y = C + I + G + NX, where Y is income, C is consumption, I is investment, G is government spending, and NX is net exports. In this model, saving (S) is equal to income minus consumption (Y - C), and investment (I) is equal to saving (S), so S = I.

Which Statement Best Characterizes the Classical Economists' View of Saving