Savings-Investment Imbalance

[broadex]

Could someone please explain why S<I leads to currency appreciation (or S>I leads to depreciation) using the savings-investment imbalance formula : S-I=(X-M)???

 

[Cric12]

When savings is less, there is less capital available which is needed for growth. Since the country needs capital which is having deficiency gap, it can be satisfied by by out of country investments. When foreign investors invest, they need to buy the currency. Hence, when S < I, currency appreciates.

 

[patso]

But how does your explanation link with the imports/exports ie formula above????????????????

 

[Cric12]

I was looking at it logically. I missed the formula part…so still an open ended question.

 

[daharmattan1]

It’s weird that the formula would tie to exports and imports honestly. That model in economics has far more to do with capital flows and foreign investment than import/export.
If you’ve got the theory you should be good, it’s pretty minor

 

[Audacious]

Y= C+I+G+(X-M)
&
Y= C+S+T
Shuffle, shake it up, shake it up, shuffle, bang, you’ve got S-I=X-M
As a NewYorkian would say after bumping into you and spilling hot coffee on you: ‘Dont worry about it”