Business, 01.06.2021 02:20 gege158

Suppose the economy begins with an 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?

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Suppose the economy begins with an output equal to its natural level. Then there is a decrease in co...

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