Consider the impact of an increase in thriftiness in the Keynesian cross. Suppose the consumption function is C = ''+ c (Y – T), where | is a parameter called autonomous consumption and c is the marginal propensity to consume. a. What happens to equilibrium income when the society becomes more thrifty, as represented by a decline in C? b. What happens to equilibrium saving? c. Why do you suppose this result is called the paradox of thrift?

Consider the impact of an increase in thriftiness in the Keynesian cross. Suppose the consumption function is C = ''+ c (Y – T), where | is a parameter called autonomous consumption and c is the marginal propensity to consume. a. What happens to equilibrium income when the society becomes more thrifty, as represented by a decline in C? b. What happens to equilibrium saving? c. Why do you suppose this result is called the paradox of thrift?

MACROECONOMICS

14th Edition

ISBN:9781337794985

Author:Baumol

Publisher:Baumol

Chapter11: Managing Aggregate Demand: Fiscal Policy

Section: Chapter Questions

Problem 2TY

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