Experts emphasize that there is no fundamental contradiction between saving and investing. This is illustrated by a principle of national accounts: in a closed economy, the savings must always be exactly the same as the investments.
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The introduction to the online dossier “European Debt Crisis” exacerbates the dispute over Europe’s rescue to the key question: “Saving or invest? ” to. However, the interviewed experts rightly emphasize in their interview contributions that there is no fundamental contradiction here. As shown below, National Accounts (VGR)even to the result that at the macroeconomic level, the savings must always be exactly the same as the investments. However, it is controversial how it can be achieved that savings and investments increase and what role the state and the private sector should play.
National Savings and investment | Financial sector | AP Macroeconomics
Economists basically distinguish between financial assets and property.
Financial assets include, for example, the cash that I have in my wallet or under my pillow, money that I have in my bank account, loans that I grant to others, or shares.
Tangible assets are, for example, houses or production facilities that belong to me.
If I save now, I basically have two options: I can expand my property, by saving part of my income and buying a new house as a private household or buying a new machine or better software as an entrepreneur.
The formation of physical assets is also referred to as an investment, and in this case, the formula: savings = investment is immediately understandable. On the other hand, I could also increase my net assets by simply not spending part of my income that I receive in the period under consideration for goods and services, but instead, for example, giving someone a loan or repaying a loan.
If I expand my net assets, it means that I have a surplus finance: my expenses for goods and services are less than my disposable income. But this is only possible if there is a financial deficit somewhere else in the economy, i.e. the net financial assets decrease (for example because someone is in debt to me or I am repaying part of a previously received loan).
If we, therefore, consider the entire world as a huge, closed economy, it necessarily results that all changes in financial assets (= financing balances) always add up to exactly zero! For a closed economy as a whole, investments are the only way to save.