3. The paradox of saving, one more time Suppose the economy begins with output equal to its natural level. Then there is a decrease in consumer confidence as households attempt to increase their saving for a given level of disposable income. a. Draw the AS - AD and IS - LM diagrams. Indicate which curves shift in the short run and medium run. Explain why the curves shift. b. What happens to output, the interest rate, and the price level in the short run? What happens to consumption, investment, and private saving in the short run? Please answer the first two questions by filling out the following table, indicating whether the above variables show one of the following behavior: rises; falls; ambiguous.

3. The paradox of saving, one more time Suppose the economy begins with output equal to its natural level. Then there is a decrease in consumer confidence as households attempt to increase their saving for a given level of disposable income. a. Draw the AS - AD and IS - LM diagrams. Indicate which curves shift in the short run and medium run. Explain why the curves shift. b. What happens to output, the interest rate, and the price level in the short run? What happens to consumption, investment, and private saving in the short run? Please answer the first two questions by filling out the following table, indicating whether the above variables show one of the following behavior: rises; falls; ambiguous.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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