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Essay text:
It can include goods that will not be replaced for long periods.
Income (households) – consumed or saved. Y = C + S. (income = consumption + savings)
Spending (firms) is production and investment. Y = C + I. (spending = consumption + investment).
Balancing the equation means firms must estimate what households want. They get it right OR wrong. If it is right, ‘C’ of production = ‘C’ of income.
Implication: ‘S’ = ‘I’ Equilibrium
End result: Y = C + S ………..and ………..Y = C + I cancel “C’s” leaves ‘S’ = ‘I’
What if ‘S’ > ‘I’? Leakage is greater than injection...
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