00:01
Here we're taking a look at why savings must equal investment.
00:04
And this is a macroeconomic identity that we should be familiar with.
00:08
But in order to simplify this and to understand why savings must equal investment, we need to recall a couple identities.
00:14
The first being that savings is equal to earnings minus consumption minus taxes.
00:21
And this makes sense because we save only what we have left over after we have spent our incomes on our consumption factors and on our taxes.
00:30
Let's also recall that why, which is our income, like i said, is also equal to gdp.
00:36
And that is because whatever we earn had to have been spent elsewhere.
00:39
So we only take in money what somebody else has spent.
00:42
So those equate.
00:43
Let's figure out exactly what gdp is also equal to.
00:46
So gdp, y, is also equal to investment plus consumption plus government spending.
00:54
And that makes sense as well...