The Paradox of Thrift: Consider the simple model of the good markets:Y = C +I+GC = Co + C1(Y – T)I = Io – hrG = GT TSaving in the simple model of the goods market is defined as S = Y C – G.(a) Using the goods market equilibrium and the definition of saving, find the pre-dicted change in aggregate savings if cOHISumers decided to save more (Co ).Explain why the effect of an aggregate increase in savings is called a paradoxusing your answer.

Savings is referred to the amount of money that a person has left over after deducting their…

The Paradox of Thrift: Consider the simple model of the good markets: Y = C +I+G C = Co + C1(Y – T) I = Io – Ihr G = G T = T Saving in the simple model of the goods market is defined as S = Y -C G.

The Paradox of Thrift: Consider the simple model of the good markets: Y = C +I+G C = Co + C1(Y – T) I = Io – Ihr G = G T = T Saving in the simple model of the goods market is defined as S = Y -C G.

ENGR.ECONOMIC ANALYSIS

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ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

The Paradox of Thrift: Consider the simple model of the good markets:
Y = C +I+G
C = Co + C1(Y – T)
I = Io – hr
G = G
T T
Saving in the simple model of the goods market is defined as S = Y C – G.
(a) Using the goods market equilibrium and the definition of saving, find the pre-
dicted change in aggregate savings if cOHISumers decided to save more (Co ).
Explain why the effect of an aggregate increase in savings is called a paradox
using your answer.

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