- If households save, they spend less on consumption goods.
- Enterprises then produce fewer consumption goods.
- They produce more capital goods instead, equal to the amount saved.
- Saved money (e.g., in banks) is borrowed by other enterprises.
- This borrowed money is used to purchase the capital goods.
- This increases the production of capital goods in the economy.
- More capital goods lead to increased future production of goods and services.
- Higher savings result in higher investment and economic growth.
