00:01
Hey everyone, today we're answering problem four from chapter 28.
00:05
So why is saving called a leakage? well, it's because it is like a leakage.
00:16
Think about something leaking from the flow of aggregate consumption, expenditures, because saving represents income not spent.
00:39
So it's a leakage because it's income not spent.
00:52
Now, why is planned investment like an injection? well, planned investment is an injection because, well, what is it? it is spending on capital goods that businesses tend to make, this is the important part, regardless of their current level of income.
01:21
It's going to happen either way.
01:29
That's their plan.
01:30
So the thing is, at equilibrium gdp, we must have savings equal to plan investment because, well, let's think about what happened if they weren't equal.
01:54
Well, in this particular scenario, there would be a discrepancy between spending and production, or a gap between spending and production, which leads to unplanned inventory changes.
02:26
Clearly that's not good.
02:28
And also, businesses not wanting inventory levels to change will change production.
02:34
And the implication of this is that equilibrium can only occur when saving leakage equals the injection of investment spending...