Since an economy's aggregate output measured by real GDP also represents the aggregate income received by the resources of production within the economy, the decrease in aggregate demand you found equals the decrease in aggregate income. The effect of this decline in aggregate income is billion. in total saving of $ As personal consumption falls by $1 billion, the economy reaches a new equilibrium with an aggregate output of $ The total amount of saving True or False: This is an example of the paradox of thrift. True False billion in the short run. sol e ke
Since an economy's aggregate output measured by real GDP also represents the aggregate income received by the resources of production within the economy, the decrease in aggregate demand you found equals the decrease in aggregate income. The effect of this decline in aggregate income is billion. in total saving of $ As personal consumption falls by $1 billion, the economy reaches a new equilibrium with an aggregate output of $ The total amount of saving True or False: This is an example of the paradox of thrift. True False billion in the short run. sol e ke
Macroeconomics: Principles and Policy (MindTap Course List)
13th Edition
ISBN:9781305280601
Author:William J. Baumol, Alan S. Blinder
Publisher:William J. Baumol, Alan S. Blinder
Chapter8: Aggregate Demand And The Powerful Consumer
Section: Chapter Questions
Problem 8DQ
Related questions
Question
Solve question no. 2 which is shaded.Hand written solutions are strictly prohibited
![Since an economy's aggregate output measured by real GDP also represents the aggregate income received by the resources of production within the
economy, the decrease in aggregate demand you found equals the decrease in aggregate income. The effect of this decline in aggregate income is
billion.
in total saving of $
As personal consumption falls by $1 billion, the economy reaches a new equilibrium with an aggregate output of $
The total amount of saving
True or False: This is an example of the paradox of thrift.
O True
False
billion in the short run.
sol
this](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F62cafd63-1199-4bdd-af76-f04ea1816f0b%2Fb5bdce75-0834-4e50-9532-33734dd17f1e%2F23xb5n_processed.png&w=3840&q=75)
Transcribed Image Text:Since an economy's aggregate output measured by real GDP also represents the aggregate income received by the resources of production within the
economy, the decrease in aggregate demand you found equals the decrease in aggregate income. The effect of this decline in aggregate income is
billion.
in total saving of $
As personal consumption falls by $1 billion, the economy reaches a new equilibrium with an aggregate output of $
The total amount of saving
True or False: This is an example of the paradox of thrift.
O True
False
billion in the short run.
sol
this
![7. Paradox of thrift
Consider a hypothetical closed economy in which there are no income taxes. If households spend $0.80 of each additional dollar they earn and save
the remainder, the expenditure multiplier for this economy is
The following graph shows the initial aggregate demand (AD) and short-run aggregate supply (SRAS) curves of this economy.
Suppose that the economy is currently in a recession. Business firms are pessimistic about the future and do not respond to a fall in interest rates. In
addition, all households are pessimistic about job prospects and desire to consume less and save more at all levels of income. As a result, personal
consumption in this economy decreases by $1 billion.
The reduction in personal consumption will lead to a decrease in aggregate demand by $
Shift either the AD curve or the SRAS curve, or both, to show the new aggregate demand curve after the full impact of the multiplier process of the
reduction in personal consumption has taken place.
PRICE LEVEL (Billions of dollars)
100
90
80
70
60
50
40
30
20
10
0
0
1
2
3
7
4 5 6
REAL GDP (Index numbers)
SRAS
AD
8
9
10
4 4
AD
SRAS
billion.
?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F62cafd63-1199-4bdd-af76-f04ea1816f0b%2Fb5bdce75-0834-4e50-9532-33734dd17f1e%2Fuijri_processed.png&w=3840&q=75)
Transcribed Image Text:7. Paradox of thrift
Consider a hypothetical closed economy in which there are no income taxes. If households spend $0.80 of each additional dollar they earn and save
the remainder, the expenditure multiplier for this economy is
The following graph shows the initial aggregate demand (AD) and short-run aggregate supply (SRAS) curves of this economy.
Suppose that the economy is currently in a recession. Business firms are pessimistic about the future and do not respond to a fall in interest rates. In
addition, all households are pessimistic about job prospects and desire to consume less and save more at all levels of income. As a result, personal
consumption in this economy decreases by $1 billion.
The reduction in personal consumption will lead to a decrease in aggregate demand by $
Shift either the AD curve or the SRAS curve, or both, to show the new aggregate demand curve after the full impact of the multiplier process of the
reduction in personal consumption has taken place.
PRICE LEVEL (Billions of dollars)
100
90
80
70
60
50
40
30
20
10
0
0
1
2
3
7
4 5 6
REAL GDP (Index numbers)
SRAS
AD
8
9
10
4 4
AD
SRAS
billion.
?
Expert Solution
![](/static/compass_v2/shared-icons/check-mark.png)
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 4 steps with 4 images
![Blurred answer](/static/compass_v2/solution-images/blurred-answer.jpg)
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.Recommended textbooks for you
![Macroeconomics: Principles and Policy (MindTap Co…](https://www.bartleby.com/isbn_cover_images/9781305280601/9781305280601_smallCoverImage.gif)
Macroeconomics: Principles and Policy (MindTap Co…
Economics
ISBN:
9781305280601
Author:
William J. Baumol, Alan S. Blinder
Publisher:
Cengage Learning
![ECON MACRO](https://www.bartleby.com/isbn_cover_images/9781337000529/9781337000529_smallCoverImage.gif)
![Economics:](https://www.bartleby.com/isbn_cover_images/9781285859460/9781285859460_smallCoverImage.gif)
![Macroeconomics: Principles and Policy (MindTap Co…](https://www.bartleby.com/isbn_cover_images/9781305280601/9781305280601_smallCoverImage.gif)
Macroeconomics: Principles and Policy (MindTap Co…
Economics
ISBN:
9781305280601
Author:
William J. Baumol, Alan S. Blinder
Publisher:
Cengage Learning
![ECON MACRO](https://www.bartleby.com/isbn_cover_images/9781337000529/9781337000529_smallCoverImage.gif)
![Economics:](https://www.bartleby.com/isbn_cover_images/9781285859460/9781285859460_smallCoverImage.gif)
![MACROECONOMICS](https://www.bartleby.com/isbn_cover_images/9781337794985/9781337794985_smallCoverImage.gif)
![Macroeconomics: Private and Public Choice (MindTa…](https://www.bartleby.com/isbn_cover_images/9781305506756/9781305506756_smallCoverImage.gif)
Macroeconomics: Private and Public Choice (MindTa…
Economics
ISBN:
9781305506756
Author:
James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:
Cengage Learning
![Economics: Private and Public Choice (MindTap Cou…](https://www.bartleby.com/isbn_cover_images/9781305506725/9781305506725_smallCoverImage.gif)
Economics: Private and Public Choice (MindTap Cou…
Economics
ISBN:
9781305506725
Author:
James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:
Cengage Learning