Income, Savings and Investment
Income: What wealth yields called income. Income is possible if wealth is there. Hence wealth is pre-requisite for income. Income may be money income and real income. When income expressed it terms of money, called money income. But real income refers to goods and services that a person purchases with his money income. Real income depends upon prices. Real income is inversely related with prices.
Savings: Saving refers to the excess of income over consumption. A person consumes some part of his current income and after it whatever income remains in his hands it is called saving.
Investment: Investment means an addition made to the physical stock of capital i.e. amount utilized for constructing building, dam, new factory etc.
I = Investment, Y = Income, S = Savings, C = consumption
1. Y = C + C 2. S = Y-C 3. C = Y – S
4. Y = C + I , Provided S = I