Labor and Saving, Part II

Our total gross domestic product is available either for consumption or for savings: savings are evaluated in more detail in this chapter through various perspectives. An economy allocates the output in a given year between consumption and saving though a balance of consumption and the interest rate. The banking system is the intermediate between the two variables: the amount that households want to save and the amount that businesses want to invest. Using a thought experiment that makes assumptions about how households will act, an upward-sloping savings curve and a downward-sloping investment demand curve are calculated. This chapter uses the USA as an example and assumes a fully-employed economy.

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