In the class, we discussed the Paradox of Thrift argued by John Maynard Keynes. According to the argument, even if many household decide at the same time to increase their saving, the total saving will not increase in the long run, while it leads the economy to a recession. For example,
case1: Income = N, MPC = ?, MPS = ?. case2: Income = N, MPC = ??, MPS = ?? where?? >?and0<?,?,??,?? <1.
Even though household decide to save more in case 2, the total saving in the long run will be same in the both cases.
(Question) Prove that the total saving in the long run in case 1 equals to that in case 2.
-At this time, I recommend you to solve this question theoretically using N, ?, ?, ??, ?? rather than using specific number such as 0.8 or 0.9.
-Hint: Use the concept of multiplier effect covered in the class.
In the class, we discussed the Paradox of Thrift argued by John Maynard Keynes. According to the argument, even if many household decide at the same time to increase their saving, the total saving will not increase in the long run, while it leads the economy to a recession. For example,
case1: Income = N, MPC = ?, MPS = ?. case2: Income = N, MPC = ??, MPS = ?? where?? >?and0<?,?,??,?? <1.
Even though household decide to save more in case 2, the total saving in the long run will be same in the both cases.
(Question) Prove that the total saving in the long run in case 1 equals to that in case 2.
-At this time, I recommend you to solve this question theoretically using N, ?, ?, ??, ?? rather than using specific number such as 0.8 or 0.9.
-Hint: Use the concept of multiplier effect covered in the class.
