**Title: Understanding the Paradox of Saving in the AS-AD Model**---**Overview:**In this section, we delve into the paradox of saving within the framework of the AS-AD (Aggregate Supply-Aggregate Demand) model. To illustrate this, we consider a scenario where the economy begins with its output at the natural level. However, a decrease in consumer confidence occurs as households attempt to increase their savings for a fixed level of disposable income. This situation provides insights into the effects on various economic factors in both the short run and the medium run.---**Key Questions to Explore:****a. Analyzing with AS-AD and IS-LM Diagrams:**- **Objective:** Demonstrate the effects of reduced consumer confidence in the short run and medium run.- **Approach:** Use AS-AD (Aggregate Supply-Aggregate Demand) and IS-LM (Investment-Savings, Liquidity preference-Money supply) diagrams.- **Explanation Required:** Describe why and how the curves in these diagrams shift due to changes in consumer confidence.**b. Short-Run Implications:**- **Focus Areas:** - Output - Interest Rate - Price Level - Consumption - Investment - Private Saving- **Critical Question:** Could the decline in consumer confidence paradoxically result in a reduction in private saving in the short run?**c. Medium-Run Analysis:**- **Objective:** Repeat the analysis for the medium run.- **Critical Question:** Explore whether the paradox of saving leads to different outcomes in the medium run compared to the short run.---**Conclusion:**By examining these scenarios, we aim to clarify the complex interactions between consumer behavior and macroeconomic variables such as output, interest rates, and savings. This analysis underscores the significance of consumer confidence and its broader economic implications.

The aggregate demand–aggregate supply model, also known as the AD-AS model, is a macroeconomic model…

VI. Here we consider the paradox of saving one last time in the context of the AS-AD model. 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. In AS-AD and IS-LM diagrams, show the effects of the decline in consumer confidence in the short run and the medium run. Explain why curves shift in your diagrams. 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? Is it possible that the decline in consumer confidence will actually lead to a fall in private saving in the short run? c. Repeat part (b) for the medium run. Is there any paradox of saving in the medium run?

VI. Here we consider the paradox of saving one last time in the context of the AS-AD model. 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. In AS-AD and IS-LM diagrams, show the effects of the decline in consumer confidence in the short run and the medium run. Explain why curves shift in your diagrams. 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? Is it possible that the decline in consumer confidence will actually lead to a fall in private saving in the short run? c. Repeat part (b) for the medium run. Is there any paradox of saving in the medium run?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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PlsAnswer the last three question fully with your own knowledge
Suppose the aggregate consumption function is represented by C = £1,000 + 0.5*YD, where YD is disposable income, and there are no taxes or transfers. Using the income-expenditure model, what increase in autonomous consumption must occur for equilibrium output to increase by £1,000? Select one: a. £200 b. £500 c. £100 d. £250
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.
Which of the following sets of variable changes will all cause the IS Curve to shift to the right? A. A decrease in autonomous consumption, a decrease in government spending and an increase in financial friction. B. An increase in autonomous consumption, an increase in government spending and a decrease in financial friction. OC. An increase in autonomous consumption, a decrease in government spending and an increase in financial friction. D. A decrease in autonomous consumption, an increase in government spending and an increase in financial friction.
Consider an economy described by the following equations: C = a + b(Y – T) | = cY – di + e Md = fY – gi P || - G = G Ms = M P P = 1 1. Derive an expression for the IS-curve and explain what does this equation represent. 2. Derive an expression for the LM-curve and explain what does this equation represent. 3:Compute the level of private saving when both the goods and the fnancial market are in equilibrium. Symbols have their usual meanings. Please provide mathematical proof.
AS1 110 A 100 AD2 AD1 900 960 1100 Real GDP FIGURE 23-5 Refer to Figure 23-5. Suppose that an increase in government purchases by 40 causes the AD curve to shift to the right, as shown. The simple multiplier is and the multiplier is 5; 1.5 4; 1.2 4; 1.5 O 4; 2.8 O 5; 1.2 Price Level
Fill this two tables ( question b and C)please fill only table
Explanation
The tax cuts of 2017 increased the 2018 disposable income of households by roughly $200 billion. If the MPC were 0.65, Instructions: Enter your responses as a whole number. a. how much of this windfall was initially saved? $ billion b. how much AD stimulus resulted over time after all multiplier effects? $ billion When I work through (b), I get the answer of 1300 billion, but it state it is incorrect.
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