Instructors Resources for Use with Macroeconomics - Essay Example

Savings refer to the process through which an individual or state decides to defer consumption in order to keep the deferred consumption in the form of an asset. Savings can be in the form of increased bank deposit increase in cash holdings or purchase of securities. There are various factors that determine changes in the amount of savings. For instance, future preference over the current consumption, future income expectations, and also rate of interest may have a significant impact on savings. In an economy, changes in savings have an imperative effect on investment and economic growth. An increase in savings translates into low investment opportunities and an increase in productive wealth, whereas a decrease in savings suggests there is a heavy investment leading to high production capacity (Mankiw 72). However, national accounts tend to keep the balance between savings and investment in order to maintain economic stability.