Aggregate Expenditure(in millions of dollars) What happens in the simple Keynesian model below if households expect lower income in the future and decide to save more today? Use the line mover tool to adjust the graph and then answer the question below. (Assume that investment varies directly with aggregate income.) 10000 9000 8000 7000 6000 5000 4000 3000 2000 1000 AE = Al C+1 0 1000 2000 3000 4000 5000 6000 7000 8000 900010000 Aggregate Incomeçin millions of dollars) What happened to output, income, and savings, as a result? What do economists call this phenomena? The decrease in consumption shifts the spending curve down, resulting in a lower level of output, income, and savings. Economists refer to the intended decrease in savings that results in a decrease in overall savings as the paradox of thrift. Output and income increase as a result of the decrease in consumption. In addition, savings will decrease when income increases. Economists refer to this as the paradox of thrift. Output and income decrease as a result of the decrease in consumption. Savings will also decrease when income decreases. Economists refer to this as the paradox of thrift. The overall increase in income, output, and savings O as a result of households' move to increase savings is known as the paradox of thrift.
Aggregate Expenditure(in millions of dollars) What happens in the simple Keynesian model below if households expect lower income in the future and decide to save more today? Use the line mover tool to adjust the graph and then answer the question below. (Assume that investment varies directly with aggregate income.) 10000 9000 8000 7000 6000 5000 4000 3000 2000 1000 AE = Al C+1 0 1000 2000 3000 4000 5000 6000 7000 8000 900010000 Aggregate Incomeçin millions of dollars) What happened to output, income, and savings, as a result? What do economists call this phenomena? The decrease in consumption shifts the spending curve down, resulting in a lower level of output, income, and savings. Economists refer to the intended decrease in savings that results in a decrease in overall savings as the paradox of thrift. Output and income increase as a result of the decrease in consumption. In addition, savings will decrease when income increases. Economists refer to this as the paradox of thrift. Output and income decrease as a result of the decrease in consumption. Savings will also decrease when income decreases. Economists refer to this as the paradox of thrift. The overall increase in income, output, and savings O as a result of households' move to increase savings is known as the paradox of thrift.
Chapter9: Aggregate Expenditures
Section: Chapter Questions
Problem 7E
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