savingsSavingis income not spent, or deferred consumption. Methods of saving include putting money aside in a bank orpensionplan.Saving also includes reducing expenditures, such as recurring costs. In terms of personal finance, saving specifies low-risk preservation of money, as in a deposit account, versusinvestment, wherein risk is higher.

Yet there are two types of savings, desirable savings and intended savings. They are not, in most cases different. Which you know by your behaviour itself.

Saving is closely related toinvestment. By not using income to buy consumer goods and services, it is possible for resources to instead be invested by being used to producefixed capital, such as factories and machinery. Saving can therefore be vital to increase the amount of fixed capital available, which contributes toeconomic growth.

investmentIneconomic theoryor inmacroeconomics, investment is the amount purchased per unit time ofgoodswhich are not consumed but are to be used for future production. Examples includerailroadorfactoryconstruction. Investment in human capitalincludes costs of additional schooling or on-the-job training.Inventory investmentrefers to the accumulation of goodsinventories; it can be positive or negative, and it can be intended or unintended. Inmeasures of national income and output, "gross investment" (represented by thevariableI ) is also a major component ofGross domestic product(GDP)The investment decision (also known ascapital budgeting) is one of the fundamental decisions of business management: Managers determine the investment value of the assets that a business enterprise has within its control or possession. These assets may be physical (such as buildings or machinery), intangible (such aspatents, software, goodwill), or financial. Assets are used to produce streams of revenue that often are associated with particular costs or outflows. All together, the manager must determine whether thenet present valueof the investment to the enterprise is positive using the marginalcost of capitalthat is associated with the particular area of business.In terms of financial assets, these are often marketablesecuritiessuch as a company stock (an equity investment) or bonds (a debt investment). At times, the goal of the investment is to produce future cash flows, while at others it may be for the purpose of gaining access to more assets by establishing control or influence over the operation of a second company (the investee).Business firms or organisations raise funds from investors in the form of equites and debts (collectively known as the capital structure) and further reinvest it into various investment schemes by carefully analysing the returns in order to meet out their obligations relating to purchase of assets which provides them long term benefits.

IdentitiesWe can identify the savings-investment identity Start with the GDP identity ("Y" is GDP, which is equal to consumption + domestic investment + government spending + exports - imports):Y = C + I + G + X MRearrange with some basic algebra.I = Y C G + M XSubtract and add taxes,which changes nothing, and add a few parenthesesI = (Y C T) + (T G) + (M X)In the first parentheses are private savings: income minus consumption minus taxes. Next are government savings: taxes minus spending (currently a large negative value). Finally, if imports of goods and services are greater than exports, we call (M X) a trade deficit.I = (Y C T) + (T G) + (M X)

ExampleNow, notice that if we import Rs.100 of goods and services and only export Rs.70 of goods and services, it must be true that we are exporting Rs.30 of other stuff.That stuff is Indian. securities. Treasury notes. We call that Rs. 30 our current account deficit it measures the amount of securities we have to sell to foreigners in order to finance our trade deficit. We can also call (M X) our import of foreign savings.the identity above. It says that gross domestic investment is equal to private savings, plus government savings, plus our import of foreign savings. Every unit of investment in the economy (I am speaking here ofrealinvestment like factories, equipment, housing, etc)mustbe financed by a unit of saving either from domestic or foreign sources.If you look at the current account deficit in isolation, the GDP equation leads you to believe that a smaller current account deficit will improve GDP. Unfortunately, the improvements that we're seeing are not coming from increased saving or productivity, but rather, from weakening domestic investment (particularly in the housing sector), which is creating a smaller demand for imported savings from foreigners.The current account deficit virtually always improves in a recession, while gross domestic investment collapses. In the coming years, it is virtually inevitable that the growth of the indian current account deficit will slow. As a result, it is virtually inevitable that indian gross domestic investment will stagnate. Again, much of this will likely represent persistent weakness in the housing sector and CRE markets.If foreign investors reduce their preference for indian. securities, we could observe more widespread difficulties in financing domestic investment. Sound fiscal policy would help to reduce these risks. Unfortunately, any hope for such policy is very thin to nil in the current political climate.

Accounting viewAccording to J.M. Keynes actual saving and actual Investment are always and necessarily equal at any level of income. He writes in his book 'General Theory':Definition:"Saving and investment are necessarily equal in amount for the community as a whole, being different aspects of the same thing".In order to prove it, he definedsavingin the current period as the excess of income over expenditure.Formula For Saving:S = Y - CHere, S stands for current saving, Y for current income and C for current consumption.As regardinvestment,it is the value of current output of capital goods together with the value of any addition to work in progress or the stock of finished goods. Investment is equal to the output of the community minus consumption.Formula For Investment:I = Y - CWhere I stands for investment, Y for income and C for consumption.Keynesian's Equation For Saving and Investment:S = Y - C ................... (i)I = Y - C .................... (ii)Taking, Y - C is common from both equations (i) and (ii). So we have:S = ISaving = Investment

Functional viewAccording to the second version ofKeynes:Definition:"Saving is equal to investment at the equilibrium level of income".It is brought about by the adjusting mechanism of income compared to the classical view of variations in the rate of interest. Keynes establishes equality between saving and investment by defining income (Y) as equal to current consumption plus current investment.Y = C + I .................. (i)Income (Y) is also equal to consumption plus saving.Y = C + S ................ (ii)From equations (i) and (ii), we have:C + I = C + SC will cancel from both sides of the equation, so:I = SInvestment = SavingThe basic idea ofexplaining equality between saving and investmentis that it is brought about by changes in income and not through the mechanism of interest rate.

GraphIn figure , income is measured on X-axis and saving and investment on Y-axis. SS/is the saving curve and II/the investment curve. When income is OY/, the investment is greater than saving, l/. When investment is more than saving, then income rises. At point L, saving and investment are equal at the equilibrium level of income OY. At point N, saving is greater than investment. The higher saving will bring a fall in income, till the equilibrium is reached at OY, equilibrium income level.The modem economists make use of functional concepts of saving and investment for emphasizing the behavior of the economy as a whole.

Graph showing the relation between rates of interest and savings- investment

conclusionCONCLUSIONSAVINGS AND INVESTMENT IDENTITY INCLOSED AND OPEN ECONOMIESClosed Economy1. GDP = C + I + G2. GDP = C + S + T3. I + G = S + T4. I = S + (T G)Investment = Private Savings + Public SavingOpen Economy1. GDP = C + I + G + (X M)2. GDP = C + S + T3. I + G + (X M) = S + T4. I = S + (T G) + (M X)since (M X) = KI because the current account deficit equals the capital account surplusInvestment = Private Savings + Public Saving + Capital InflowsWhere:C = consumptionI = investment