Savings

Income that, instead of being consumed, is set aside for future use. Keynes suggested three reasons for this decision: the precautionary motive, speculative motive and transactions motive. Across the economy, a sudden increase in saving leads to a fall in aggregate demand, and thus increases the potential for a recession. But savings are also vital for long-term economic growth since they provide the funds for investment. In the world economy—or in a theoretical economy closed to trade—saving and investment must be equal.