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re crucial to it’s long run economic growth. We know savings and investment are equal in a closed economy. But things are not as simple in an open economy. If the economy is closed then the GDP (denoted as Y) is divided in three components. Then the equation will be-

Y= C + I+ G

On the other hand, if the economy is open then GDP is divided into four components. That is-

Y= C + I + G + NX

Events that occur within the financial system are centrals to understanding developments in the overall economy. The institutions that make up this system –the bond market, the stock market, banks and mutual funds have the role of coordinating the economy’s savings and investments.

Saving is determined by the rate and patterns of growth and the institutional and social sectors. In order to promote economic development savings have not only to be generated but they have also to be mobilized to the maximum extent possible and then canalize them into productive investment. The conditions of the developing countries like Bangladesh are not very conductive to economic growth from the point of view of capital formation. The rate of saving is very low .The financial institution that mobilize these saving is not adequate; nor the climate for investment favorable. Finance is needed both for public and private sector. So far as the private sector is concerned it primarily depends on the voluntary saving of the people. Profits of private undertakings can also be ploughed back into investment institutions like financial corporation set up by the govt. can also provide the needed development finance to the private sectors. To finance capital formation and other development activities in the public sector is the responsibility of govt. There are various methods in financing development of the public sector. Owing to the shortage of voluntary savings, the govt. often compelled to resort to the device of forced saving.

Investment may be counted on the gross or the net basis.Net investment is gross investment minus depreciation. In the theory of income and employment, investment means net investment and net gross investment. Investment may be planned or anticipated or intended investment or it may be ex-post, that is actually realized investment or when investment is not merely planned or intended but which has actually been invested or implemented: Thus context does not mean the purchase of existing securities or titles -bonds, debentures ,shares etc. After all , saving and investment are important determinant of living standard. So govt. should increase saving incentive and find new areas of investment to use savings properly.
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