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?

ENGR.ECONOMIC ANALYSIS

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ISBN:9780190931919

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Chapter1: Making Economics Decisions

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Question

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?

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