1. Are you dealing with a single country or the global economy? If a single country, investment funds can move from country to country so that the total invested in country A might well be more or less than the amount saved in country A.
If you are talking about the global economy, then you have to remember all those central banks who just hold piles of money on their books instead of investing it or lending it out to others.
2. Different definitions. If I put my money in a 401K and use it to buy stocks, by one definition, I am clearly saving. But by another, I am not.
There is a definition of saving which basically makes it true by definition that aggregate savings equals investment.
But if it is true by definition, then it doesn't tell you much.
For example, if I take a year off work to go to school, I'm clearly making an investment. But how much of the money I spend that year counts toward that investment?
All in all, accounting identities, such as aggregate savings = investment, are useful aids, but are not to be trusted at face value.
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Lots of reasons:
1. Are you dealing with a single country or the global economy? If a single country, investment funds can move from country to country so that the total invested in country A might well be more or less than the amount saved in country A.
http://en.wikipedia.org/wiki/Foreign_direct_invest...
http://seekingalpha.com/article/162947-expect-a-de...
If you are talking about the global economy, then you have to remember all those central banks who just hold piles of money on their books instead of investing it or lending it out to others.
2. Different definitions. If I put my money in a 401K and use it to buy stocks, by one definition, I am clearly saving. But by another, I am not.
There is a definition of saving which basically makes it true by definition that aggregate savings equals investment.
http://wfhummel.cnchost.com/savingandinvestment.ht...
http://en.wikipedia.org/wiki/Investment#In_economi...
But if it is true by definition, then it doesn't tell you much.
For example, if I take a year off work to go to school, I'm clearly making an investment. But how much of the money I spend that year counts toward that investment?
All in all, accounting identities, such as aggregate savings = investment, are useful aids, but are not to be trusted at face value.
http://krugman.blogs.nytimes.com/2009/01/27/a-dark...
BTW, if you can get a copy, you might this book interesting:
http://www.press.umich.edu/titleDetailDesc.do?id=1...