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Assignment Nos. 8/ Savings, Investments, and the Financial System

Submitted by: Ciara Castañeto Submitted to: Prof. Aj Orencia

Date Submitted
April 16, 2021

Section Schedule
Wednesday 4:00-5:30PM
1. In what role do you think does savings and investments play in the economy?
Explain your answer.

Saving means putting money together that you don't need right now for an
emergency or a potential order. It's capital you'd like to get access to easily, with little
to no expense, and with the fewest taxes possible. Financial services have a variety
of deposit opportunities. Investing is the process of purchasing assets such as stocks,
bonds, mutual funds, or real estate with the expectation of profit. The majority of
investments are made with the intention of achieving long-term objectives. Generally
speaking, investments can be categorized as income investments or growth
investments. For different people, saving means different things. To others, it entails
depositing funds in a vault. To others it means buying stocks or contributing to a
pension plan. Saving, on the other hand, means spending less now in order to
consume more later, according to economists. An easy way to understand the
economist’s view of saving—and its importance for economic growth—is to consider
an economy in which there is a single commodity, say, corn. The quantity of corn on
hand at any point of time will either be eaten (literally gobbled up) or saved. Any corn
that is saved is planted (invested) right away, resulting in more corn in the future. As
a result, saving increases the supply of corn in the ground, or the stock of resources
in economic terms. The larger the capital stock, the more potential corn there would
be, which can either be eaten or preserved.

2. In what way does saving and investment affect economic growth and
development? Give an example and justify your answer.

A number of well-known economists have studied the relationship between

savings and economic growth. By examining the case of Kosovo from both a
qualitative and quantitative research methodology, this study adds to our
understanding of such a correlation. The unit root test confirms stationarity, and the
regression results indicate that deposits have a substantial positive effect on Kosovo's
economic development, as savings stimulate consumption, productivity, and jobs,
resulting in greater long-term growth. Furthermore, loans and remittances have a
direct effect on spending, which helps to improve Kosovo's economy. This paper
demonstrates that countries with a high national savings rate are less reliant on foreign
direct investment, and therefore the likelihood of uncertain foreign direct investment is
reduced significantly.
Higher savings can help fund higher levels of spending and, in the long run,
increase efficiency. People who save more money allow banks to lend more money
to businesses for investment. When savings are very poor, the economy prioritizes
short-term consumption over long-term expenditure. The savings ratio is an important
factor in determining economic growth. Consumer consumption accounts for 63
percent of GDP, far outnumbering government spending, investment, and exports. An
increase in the savings ratio will have a major effect on economic growth. Investment
is a component of aggregate demand (AD) (AD). Therefore, if there is an increase in
investment, it will help to boost AD and short-run economic growth. Increased
spending and a rise in AD would raise the pace of economic development if there is
spare room.

3. What is savings and why is it important in economic development?

Savings is an economy of or reduction in money, time, or another resource. The

money one has saved, especially through a bank or official scheme a reservation. As
a result, in national income statements, saving and spending are always equal.
Because of its relationship to consumption, saving is critical to a country's economic
growth. If there is to be an increase in productive wealth, some individuals must be
willing to abstain from consuming their entire income. Saving, method of setting aside
a part of current income for potential usage, or the flow of capital accrued in this
manner over a given period of time. Saving can take the form of rises in bank deposits,
acquisitions of shares, or expanded cash holdings. Individuals' willingness to invest is
influenced by their desires for future spending over current consumption, their hopes
for future profits, and, to a lesser degree, the rate of interest. An person can calculate
his savings for a given accounting period in two ways. One method is to calculate his
salary and deduct his current outgoings, with the variance representing his savings.
Another option is to look at his balance sheet (his assets and liabilities) at the start
and end of the time and calculate the rise in net worth, which represents his savings.

References:
Ribaj, A., & Mexhuani, F. (2021). The impact of savings on economic growth in a
developing country (the case of Kosovo). Journal of Innovation and
Entrepreneurship, 10(1). https://doi.org/10.1186/s13731-020-00140-6
Tejvan Pettinger. (2018, October 11). Would an increase in savings help the
economy? - Economics Help. Retrieved from Economicshelp.org website:
https://www.economicshelp.org/blog/7102/economics/would-an-increase-in-
savings-help-the-economy/
Tejvan Pettinger. (2017, May 6). Investment and economic growth - Economics
Help. Retrieved from Economicshelp.org website:
https://www.economicshelp.org/blog/495/economics/investment-and-economic-
growth/