Terms

Circular Flow of Macro Economy

  • What is Produced = What is Spend = What is Earned (Income = GDP)
  • Therefore, National Savings = Investment (S = I)
  • Investment is required to grow productivity
  • Productivity + Labor Force Growth = Economic Growth
  • Therefore, Greater Savings = Greater Investment
  • Other Notes On this Model
    • Government Deficits = Negative Savings = Less InvestmentĀ 

Negative Feedback Loop of Increasing Government Deficits

  • Rising Deficits Reduces Savings Rates
  • Lower Savings Rate = Less Investment
  • If Private Savings Rises to Counteract Government Deficit, then Consumer Spending & Economic Growth
  • Only Way out is to reduce government deficits