Question

Explain, in brief, the concept of ex-ante and ex-post saving and investment. Why are ex-ante saving and ex-ante investment not always equal to each other?

Accepted Answer

Ex-ante savings and Ex-ante investments

The ex-ante savings are meant to be the amount of savings that all households intend to make at the different levels of income. The ex-ante savings are generalised as the planned savings. These savings are calculated on the basis of the saving function. In contrast, the ex-ante investments are identified to be the number of investments that all producers are willing to put in the production or investment ventures in an economy. These investments are generalised as planned investments.

Ex-post savings and Ex-post investments

The ex-post savings are said to be the amount of savings that are made by all households in an economy. These savings can be recognised as the actual savings in an economy. In contrast, the ex-post investments are considered as the number of investments that all producers actually inject into an economy. These investments are sychronised as the actual investments.

Ex-ante savings and ex-ante investments are not always equal to each other.

This is the fact that the economy reaches equilibrium when ex-ante savings are equated to the ex-ante investments. But, this scenario does not always sustain. There are a lot of reasons behind this non-equality:

The households make savings whereas the producers make investments. The mindsets of both economic agents are generally different.

The households make savings in smaller quantities while the producers make investments in larger quantities.

The households save monetary funds in order to meet the contingent requirements while the producers make investments to generate profits.

Explain, in brief, the concept of ex-ante and ex-post saving and investment. Why are ex-ante saving and ex-ante investment not always equal to each other?

Important Questions on Determination of Income and Employment

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