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"The paradox of thrift is a non-issue if an increase in planned saving coincides with an exogenous increase in planned investment." Discuss this statement in the context of the IS-LM model.

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Divya Singh
Divya SinghLv10
28 Sep 2019

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Related questions

Using a simple model of the expenditure sector without any government involvement, explain the paradox of thrift that asserts that an increased desire to save may not lead to an increase in actual saving.

A) How will the fall in consumer confidence affect consumption, investment, and private saving? Will the attempt to save more necessarily lead to more saving? Will this attempt necessarily lead to less saving?

B) What do you think about the probability of observing the paradox of saving in the IS-LM model vs. IS relation (goods market equilibrium)? Discuss.

1.In the IS-LM model, if there is a positive exogenous shock to investment, what happens to income (Y) and the rate of interest (r)

? r rises, Y rises

r rises, Y falls

r falls, Y rises

r falls, Y falls

In the IS-LM model, if there is a positive exogenous shock to consumption, and the fiscal authority wants to stabilize output, what policy could it undertake?

increase money supply

reduce government expenditures

reduce taxes

decrease money supply and taxes at the same time

In an usual IS-LM framework, the government increases taxes and government expenditures simultaneously. Which direction does the IS curve shift?

rightward

leftward

stays same

cannot say

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