The following is a very simplified explanation of the Savings/Investment identity, ignoring imports, exports and government surpluses and deficits. It relies on equating two different ways of Gross Domestic Product: as Total Income and Total Spending. For a deeper explanation, search "Macroeconomics", "Gross Domestic Product" and "Supply and Demand for Loanable Funds".
Savings is just what people earn minus what they spend and what they pay in taxes. Lets call Savings (S), "what they earn" Income (Y), "what they spend" Consumption (C) and "what they pay in taxes" Taxes (T). So now:
S = Y - C - T (Equation 1)
Looking at the economy as a whole, the income of a nation (Y) is either spent by people (C), spent by government (G) or spent by businesses as investment (I). Now:
Y = C + G + I (Equation 2)
If we assume that the government doesn't spend more or less than it taxes, then G = T, or:
G - T = 0 (Equation 3)
Substituting the right side of Equation 2 into Equation 1, we have:
S = Y - C - T = (C + G + I) - C - T = I + (G - T) (Equation 4)
Finally, substituting the right side of Equation 3 into Equation 4, we have:
S = I + (G - T) = I + 0 = I.
Therefore, Savings = Investment.
Total income in the economy must always equal total spending. :)
It is the total expenditure for all kinds within the economy that is public and private. The national expenditure =Consumption+Investment+government purchases.
Add all total expenditure in an economy at current prices, this includes government spending, consumption, investment and net exports.
the economy will contract, total income and output decreases and may be the begining of a recession.
total investment less the amount of investment goods used up in producing the years output
An economy's income must be equal to it's expenditure because every transaction has a buyer and a seller. It is also because every dollar of spending by some buyer is a dollar of income for some seller. Gross domestic product (GDP) measures an economy's total expenditure on newly produced goods and services and the total income earned from the production of these goods and services.
1%
Total Liabilities, $90,000. Capital. Planned Investment. Owner Injection, $41,707.
net profit\total investment = ROI
Total investment less the amout of investment goods used up in producing the year's output.
GDP is the total output by an economy. if GDP increases, it will generate more ecnomic activity, more jobs and therefore increased wages for people. With these wages, people can increase their total expenditure. Total expenditure = consumer consumption + investment + government spending + net exports with more money from income, individuals will spend more on consumption and money which was saved in banks can be used to invest in firms. the taxes people pay will go to the government to spend. this will increase total expenditure. If GDP is low, then theres less acitivity in the economy, less jobs, less wages, less taxes, more government spending and a higher deficit and therefore total expenditure decreases.
To calculate the return on an investment you will fist write down the amount of your total investment including fees and any expenses. Next, write down your loss and finally calculate the return on investment by dividing the profit by total investment. www.moneychimp.com offers a compound interest calculator for your convenience.