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Explain further the following and expand what is the thought per bullet; In general, business and household investments increase the economy's stock of capital and

Explain further the following and expand what is the thought per bullet;

  • In general, business and household investments increase the economy's stock of capital and total output whereas depreciation has the opposite effect as it represents capital consumption
  • Despite the investment-production time lag, sustained investment expansion can determine growth in the capital stock and production level of a firm or the aggregate economy over a long period of time
  • Savings is the unspent portion of a person's (personal saving), company's or institution's (retained earnings) income during the period intended for spending.

(as in the case of a salaried employee who sets aside portion of his half-month pay earmarked for the next fifteen days or for emergency expenses).

  • Savings of the economy can be simply expressed as follows, assuming that it is the only determinant of the multiplier:

S = Y - C

where:

S= saving

Y = income

C= consumption

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