In the context of saving-investment approach to determine equilibrium level of income in the economy, it is important to understand the difference between the words Ex-ante and Ex-post because equilibrium occurs only when ex-ante savings and ex-ante investment are equal.
Briefly ex-ante expression indicates before the event and ex-post expression indicates after the event. For instance, what the households plan to cosume during the year in the beginning of the period is called ex-ante consumption but the amount of actual consumption measured at the end of the year is called ex-post consumption. Similarly, the amount of investment which the firms plan (or intend) to make during a period is ex-ante investment but what the firms have actually invested measured at the end of the period is ex-post investment. At any level of income, ex-post savings are always equal to ex-post investment. The significance of distinction between ex-ante and ex-post is that in the theory of determination of income, all variables are ex-ante (planned) variables.
Planned saving and Planned investment.
The savings which are planned (intended) to be made by all the households in the economy faring a period (say, a year) in the beginning of a period is called planned (or Wflnte) savings, The amount of planned or desired savings is given by the saving function ((.e., propensity to save).
The investment which is planned to be made by the firms or entrepreneurs in the economy during a period (say, a year) in the beginning of a period is called planned (or ex–ante) investment. The amount of planned investment is given by the investment demand function.
(i) Equilibrium in the economy occurs only when planned investment is equal to planned savings. Ex-ante savings and investment may or may not be equal. It is only when ex-ante savings = ex–ante Investment that equilibrium takes place. It means that an economy invests what it has saved. Such equilibrium is rare because savers and investors are different people who save and invest with different motives. [Mind, expost (actual) savings and expost (actual) investment are always equal at all levels of income.]
(ii) When planned saving is not equal to planned investment, i.e., when planned spending is not equal to planned output, then output will tend to adjust up or down until the two are equal again.
Test
Yogita Ingle 5 years, 10 months ago
In the context of saving-investment approach to determine equilibrium level of income in the economy, it is important to understand the difference between the words Ex-ante and Ex-post because equilibrium occurs only when ex-ante savings and ex-ante investment are equal.
Briefly ex-ante expression indicates before the event and ex-post expression indicates after the event. For instance, what the households plan to cosume during the year in the beginning of the period is called ex-ante consumption but the amount of actual consumption measured at the end of the year is called ex-post consumption. Similarly, the amount of investment which the firms plan (or intend) to make during a period is ex-ante investment but what the firms have actually invested measured at the end of the period is ex-post investment. At any level of income, ex-post savings are always equal to ex-post investment. The significance of distinction between ex-ante and ex-post is that in the theory of determination of income, all variables are ex-ante (planned) variables.
Planned saving and Planned investment.
The savings which are planned (intended) to be made by all the households in the economy faring a period (say, a year) in the beginning of a period is called planned (or Wflnte) savings, The amount of planned or desired savings is given by the saving function ((.e., propensity to save).
The investment which is planned to be made by the firms or entrepreneurs in the economy during a period (say, a year) in the beginning of a period is called planned (or ex–ante) investment. The amount of planned investment is given by the investment demand function.
(i) Equilibrium in the economy occurs only when planned investment is equal to planned savings. Ex-ante savings and investment may or may not be equal. It is only when ex-ante savings = ex–ante Investment that equilibrium takes place. It means that an economy invests what it has saved. Such equilibrium is rare because savers and investors are different people who save and invest with different motives. [Mind, expost (actual) savings and expost (actual) investment are always equal at all levels of income.]
(ii) When planned saving is not equal to planned investment, i.e., when planned spending is not equal to planned output, then output will tend to adjust up or down until the two are equal again.
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