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Economics (MindTap Course List)

13th Edition
Roger A. Arnold
ISBN: 9781337617383

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BuyFindarrow_forward

Economics (MindTap Course List)

13th Edition
Roger A. Arnold
ISBN: 9781337617383
Textbook Problem

According to Keynes, can an increase in saving shift the AD curve to the left? Explain your answer.

To determine

Increase in savings and impact over the AD curve.

Explanation

The aggregate demand is the summation of all the individual demand curves of the economy. Thus, it is the total demand of the economy at various price levels of the economy. When the consumer is considered, there are only two choices in front of them and they are either to consume or to save their disposable income. There are no other choices for the consumers of the households. Thus, the savings and consumption both are directly related to the level of disposable income of the households. As the people consumes, the difference between the disposable income and the level of consumption determines the level of savings. Thus, the savings can be written as follows:

Savings=Disposable incomeConsumptionS=YdCS=Yd[

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