19 Oct volume of savings.
In Chapter 3(the goods market), when considering the short-term determinant of aggregate expenditure and equilibrium output, we encountered the paradox of savings. Increasing the savings rate does not increase the total volume of savings. Instead, Y, C, and I all fall – and presumably when Y falls so does employment, N. In this chapter(the long run), we make the simplifying assumption that increasing the savings rate s will not cause any change in N. First, briefly explain the paradox of savings in your own words. (You may also illustrate with equations or graphs if you wish to.) Do you find the paradox of savings persuasive as a description of the short term behavior of the real economy? Then think about the way in which many short-run periods in succession add up the long run. Do you consider the simplifying assumption that s will not cause a change in N reasonable for the long run? Or do you think short run fluctuations can have long run consequences? Explain your position. (This is a thinking question, not a right answer/wrong answer question.
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