6. When households opt to increase savings; consumption decreases from C₁ = 240 + 0.9YD to C₁ = 140 + 0.9YD. Assume AS = 2p, 1=100, R = 100+ 0.1y, G = 50 and NX = 200 -0.01 -0.1p. a. Provide two labelled diagrams with supporting calculations showing AS/AD and NS/NAF to illustrate how prices and real GDP and savings respond to this change. Show equilibrium yo, y1 and y2. Ignore long run considerations. b. Explain whether or not this example exhibits a Paradox of Thrift.

6. When households opt to increase savings; consumption decreases from C₁ = 240 + 0.9YD to C₁ = 140 + 0.9YD. Assume AS = 2p, 1=100, R = 100+ 0.1y, G = 50 and NX = 200 -0.01 -0.1p. a. Provide two labelled diagrams with supporting calculations showing AS/AD and NS/NAF to illustrate how prices and real GDP and savings respond to this change. Show equilibrium yo, y1 and y2. Ignore long run considerations. b. Explain whether or not this example exhibits a Paradox of Thrift.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Related questions

Q: 4. Show on a diagram how an individual may seek to smooth their consumption over their lifetime. How…

A: The life cycle Hypothesis explains the individual's smooth consumption over a period of a lifetime.…

Q: Use the information in the table below to answer questions about the economy of Watis. a. Complete…

A: Consumption function has two components, namely autonomous consumption and induced consumption.…

Q: Assume an economy in which: (i) there are no exports and no imports, (ii) investors always want to…

A: The economy spends an amount of money referred to as aggregate expenditure. It is a fundamental…

Q: Question 12 Assume the following consumption schedule. C= 20 + 0.9 Y, where C is consumption and Y…

A: Income is the sum of savings and consumption spending. Savings = Y - C

Q: in a simple economy, the savings function In this economy, equilibrium GDP is $ (Round your answer…

A: Y=C+I where, Y stand for total expenditure C stand for consumption expenditure I stand for…

Q: 3. Consider the economy described by the following equations Y=C+I+G Y = 8,000 G=2,000 T = 1,000…

A: Given that; Y = 8,000G = 2,000T = 1,000C = 250 + 0.75(Y −T )I = 800 − 50r ------------------ C = 250…

Q: 12. Given this diagram of Consumption and Savings functions, What will be the level of savings at an…

A: ***Since the student has posted a question with multiple subparts, the expert is required to solve…

Q: Eleanor purchases stock in NanoSpeck, a biotech firm. Darnell purchases a new condominium in Denver.…

A: Savings means to save from money from the earning which is used in future purpose. Investment means…

Q: 8. Given the following on a closed economy. C = 40 + 0.8Yd 1 = 55-200r G = 20 T = 20 Ye = 400 C=…

A: At equilibrium , National income is the sum of Consumption, Investment, government spending and net…

Q: Assume there are no investment projects in the economy that yield an expected rate of return of 25…

A: The expected return is the total amount of profit and loss derived from the investment decision that…

Q: Disposable Income 35,000 MPC Consumption Savings .9 35,000 .7 55,000 .8 55,000 1

A: The marginal propensity to consume (MPC) measures the change in consumption when the disposable…

Q: a. Compute the MPS and the MPC b. Consider the consumption equation C=a=b.Y. Compute a and b. C. At…

A: When the income is zero, the savings is -50. And when the income is 1000, savings is 0.

Q: 4. Show on a diagram how an individual may seek to smooth their consumption over their lifetime. How…

A: The theory that states that an individual seeks to smoothen his or her consumption over their…

Q: 3. Consider the following consumption and output functions. Ct = Co+cYt-1 with 0<c<1 Y₁ = Ct+It (1)…

A: In economics, the consumption function is a mathematical equation that expresses the relationship…

Q: The population of Czechia is ageing quickly and the old, who spend a relatively small proportion of…

A: Answer - GDP (output) :- It is the sum of all the goods and services produced in a country in a…

Q: Question 1: Consumption and Savings Functions (Show your work) Disposable Income Consumption Saving…

A: A disposable income of 0 corresponds to consumption of 500 and savings of -500, according to the…

Q: Saving $₂ S₁ Disposable Income Suppose the economy's saving schedule shifts from S₂ to S₁, as shown…

A: MPC is the marginal propensity MPS is the marginal propensity to save. MPS + MPC = 1 The MPS shows…

Q: Assume that the economy can be modeled as follows: AE = C + I + G C = 300 + .6Yd I = 400 G = 100…

A: Hi! Thank you for the question, As per the honor code, we are allowed to answer three sub-parts at a…

Q: 120 100 80 60 40 20 45 20 40 60 80 100 120 Income (Billions) Refer to the above figure. If the…

A: The economies around the world tend to work upon the basis that each society has to face a scarcity…

Q: Please take your time to help me because so many answers are wrong. Help with b, c and d Consider an…

A: To determine economic health, numerous measures and formulas are used to find the output, GDP,…

Q: 3. Suppose an economy with the following characteristics. Y = Real GDP or national income T= Taxes =…

A: The aggregate expenditure refers to the sum of all the expenditures tackle in the economy by the…

Q: Refer to the information provided in Figure 23.6 below to answer the question(s) that follow.…

A: The saving function can be represented as:S(a, b, Y) = aY - bWhere:S represents saving.Y represents…

Concept explainers

Public Saving

Public saving deals with the amount which has been in excess after meeting all the obligatory expenses and investment of the government. Taxes are collected by the government to meet its day-to-day expenditures. The obligatory expenses include all those expenses which are mandatory for the government. It cannot be avoided as it is inevitable.

Question

6.
When households opt to increase savings; consumption decreases from Co = 240 + 0.9YD to C = 140 +
0.9YD. Assume AS = 2p, I = 100, R = 100 + 0.1y, G = 50 and NX = 200 – 0.01Y – 0.1p.
а.
Provide two labelled diagrams with supporting calculations showing AS/AD and NS/NAF to illustrate
how prices and real GDP and savings respond to this change. Show equilibrium y0, y1 and y2. Ignore
long run considerations.
b.
Explain whether or not this example exhibits a Paradox of Thrift.

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

SEE SOLUTION Check out a sample Q&A here

Step 1: Write an introduction on Macroeconomics

VIEW

Step 2: Explain with graphs on how prices, real GDP and savings respond to the change

VIEW

Step 3: Analyze whether the scenario exhibits a paradox of thrift

VIEW

Solution

VIEW

Step by step

Solved in 4 steps with 6 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.

Similar questions

Please answer to 2 decimal places
3. Analytic Question on Durable Consumption It is known that durable consumption is more sensitive to interest rates and expected income. In this question, we investigate if this is the case in the context of the model we have been studying. We investigate the following decision: U (c1, c2) 1 max {c1,c2} 2 VCi + xo + subject to the following budget constraints: The time 1 budget constraint: a = Y1 - Ci and the time 2 budget constraint: C2 = Y2 + (1 +r) a. The novelty is that ro is now a variable to represents past purchases of goods 1. You can think of this as a car. In turn, we have that x1 = c1 so a1 is consumption derived utility in period 2 derived from past purchases. For this question assume that B (1+ r) = 1. Answer the following questions. а. Substitute out a from both budget constraints, the one at time 1 and time 2, to write a single intertemporal budget constraint. b. Show that the Euler equation (the equation that relates the marginal utility of consumption to the interest…
The following table provides data for output (real GDP) and saving. a. Fill in the missing numbers (gray-shaded cells) in the table. Instructions: In the table, enter your answers for consumption as a whole number. Round your answers for APC and APS to 3 decimal places. Round your answers for MPC and MPS to 1 decimal place. If you are entering any negative numbers be sure to include a negative sign (-) in front of those numbers. Level of Output and Income (GDP = DI) Consumption Saving АРС APS MPC MPS 496 -0.033 -0.015 $480 $-16 1.033 520 528 -8 1.015 560 560 1.000 0.000 592 624 600 0.987 0.013 640 16 0.975 0.025 680 656 24 0.965 0.035 720 688 32 0.956 0.044 760 720 40 0.947 0.053 800 752 48 0.940 0.060
At an aggregate output level of $400 billion what is aggregate savings?
7. Assume consumption is represented by the following: C = 400+.75Y. Also assume that planned investment (I) equals 100. a. Given the information, calculate the equilibrium level of income. b. What is the savings function? c. Given the information, calculate the level of consumption and saving that occurs at the equilibrium level of income. d. Suppose planned investment increases by 100. i. Calculate the new equilibrium level of income. ii. Given your answer, what is the size of the multiplier for this economy? e. Use the Keynesian cross diagram to reflect both equilibrium output.
Is the relationship between changes in spending and changes in real GDP in the multiplier effect a direction (positive) relationship or is it an inverse (negative) relation- ship?
Refer to the table. Planned Planned Consumption Saving Planned Real GDP Investment $6,000 $1,000 $1,000 $5,000 10,000 0 10,000 14,000 1,000 15,000 18,000 2,000 20,000 22,000 25,000 26,000 30,000 If real Gross Domestic Product (GDP) equals $25,000, what is the average propensity to save? OA. 0.0 OB. 0.88 OC. 0.12 OD. 0.56
The following questions refer to this table:
Fill in the aggregate saving column in the following table. (Include a minus sign if necessary.) Aggregate Income, Y $0 100 200 300 400 500 600 Aggregate Consumption, C $200 250 300 350 400 450 500 The value of the MPC is one decimal place.) T Aggregate Saving, S $-200 150 100 50 0 50 100 (Round your response to CXIE DE Aggregate consumption, C Aggregate saving, S 700- 600- 500- 400 300- 200 100- 0 -100- -200- 300- -400- 100 200 300 400 500 Aggregate income, Y 600
Problem 1 Suppose the system of aggregate expenditures can be described by the following relationships and parameter values. C(Y – T) = 1200 + 0.8(Y – T) I(r) = 100 – 3r G = 200;T = 200; r = 5; Ex = Im = 0 1. In the consumption function, 1200 represents the portion of consumption that is not dependent on disposable income. Suppose something causes households to become concerned about their economic futures and this autonomous consumption falls to 1100. Find the new equilibrium level of Y (output/income).
Assume consumption is represented by the following function: C=400+0.75Y. Also assume that planned investment (I) equals 100 and there are no government or taxes.
1. Suppose your annual income is $82,000 this year and it is expected to increase 25% next year. The market interest rate is 3%. a. Please illustrate all possible consumption patterns with a figure. Do not forget to label your axes. b. You believe that your consumption this year and your consumption next year should be the same. If you follow your plan and consume equally in those two years, how much should you save or borrow this year?