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# 14-Kall - Constructing Multipliers Lecture 14-PREVIEW Dr...

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macroS2010 Lec14-page 2 http://www.arts.cornell.edu/econ/wissink/econ102jpw/ Prelim 1 History Mean Median S.D. S04 81 84 11 S05 75 78 16 S06 88 89 9 S07 74 76 14 S08 82 85 12 S09 77 81 15 S2010 82 86 17
macroS2010 Lec14-page 3 http://www.arts.cornell.edu/econ/wissink/econ102jpw/ The Paradox of Thrift

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macroS2010 Lec14-page 4 http://www.arts.cornell.edu/econ/wissink/econ102jpw/ Multiplier Madness: Part I How about we add a small wrinkle. Suppose I d is actually a function of Y. Suppose there is a marginal propensity to invest out of Y call it the mpi ≡ ΔI d /ΔY How would things change? Would K I get larger or smaller?
macroS2010 Lec14-page 5 http://www.arts.cornell.edu/econ/wissink/econ102jpw/ K I Recalculated with mpi > 0 and <1

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macroS2010 Lec14-page 6 http://www.arts.cornell.edu/econ/wissink/econ102jpw/ Paradox of Thrift Revisited - Challenge Assume our basic frugal economy with a non-zero mpc and non-zero mpi and then re-examine the “paradox of thrift.” Show that if 0<mpi<1 then it can be the case that when saving increases, not only does Y* decrease but the equilibrium amount of saving S* also decreases! So by people wanting to save more, in equilibrium there is less saving in the economy.
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