Aggregate Expenditure(in millions of dollars) What happens in the simple Keynesian model below if households expect lower income in the future and decide to save more today? Use the line mover tool to adjust the graph and then answer the question below. (Assume that investment varies directly with aggregate income.) 10000 9000 8000 7000 6000 5000 4000 3000 2000 1000 AE = Al C+1 0 1000 2000 3000 4000 5000 6000 7000 8000 900010000 Aggregate Incomeçin millions of dollars) What happened to output, income, and savings, as a result? What do economists call this phenomena? The decrease in consumption shifts the spending curve down, resulting in a lower level of output, income, and savings. Economists refer to the intended decrease in savings that results in a decrease in overall savings as the paradox of thrift. Output and income increase as a result of the decrease in consumption. In addition, savings will decrease when income increases. Economists refer to this as the paradox of thrift. Output and income decrease as a result of the decrease in consumption. Savings will also decrease when income decreases. Economists refer to this as the paradox of thrift. The overall increase in income, output, and savings O as a result of households' move to increase savings is known as the paradox of thrift.
Aggregate Expenditure(in millions of dollars) What happens in the simple Keynesian model below if households expect lower income in the future and decide to save more today? Use the line mover tool to adjust the graph and then answer the question below. (Assume that investment varies directly with aggregate income.) 10000 9000 8000 7000 6000 5000 4000 3000 2000 1000 AE = Al C+1 0 1000 2000 3000 4000 5000 6000 7000 8000 900010000 Aggregate Incomeçin millions of dollars) What happened to output, income, and savings, as a result? What do economists call this phenomena? The decrease in consumption shifts the spending curve down, resulting in a lower level of output, income, and savings. Economists refer to the intended decrease in savings that results in a decrease in overall savings as the paradox of thrift. Output and income increase as a result of the decrease in consumption. In addition, savings will decrease when income increases. Economists refer to this as the paradox of thrift. Output and income decrease as a result of the decrease in consumption. Savings will also decrease when income decreases. Economists refer to this as the paradox of thrift. The overall increase in income, output, and savings O as a result of households' move to increase savings is known as the paradox of thrift.
Chapter1: Making Economics Decisions
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Transcribed Image Text:Aggregate Expenditure(in millions of dollars)
What happens in the simple Keynesian model below if households expect lower income in the future and
decide to save more today? Use the line mover tool to adjust the graph and then answer the question
below. (Assume that investment varies directly with aggregate income.)
10000
9000
8000
7000
6000
5000
4000
3000
2000
1000
AE = Al
C+1
0
0 1000 2000 3000 4000 5000 6000 7000 8000 900010000
Aggregate Income(in millions of dollars)
What happened to output, income, and savings, as a result?
What do economists call this phenomena?
The decrease in consumption shifts the spending
curve down, resulting in a lower level of output,
income, and savings. Economists refer to the
intended decrease in savings that results in a
decrease in overall savings as the paradox of thrift.
Output and income increase as a result of the
decrease in consumption. In addition, savings will
decrease when income increases. Economists refer
to this as the paradox of thrift.
Output and income decrease as a result of the
decrease in consumption. Savings will also decrease
when income decreases. Economists refer to this as
the paradox of thrift.
The overall increase in income, output, and savings
as a result of households' move to increase savings
is known as the paradox of thrift.
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