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Using the simple Keynesian model and the savings and investment diagram show the full meaning of the paradox of thrift? What would happen to equilibrium income if there is a sustained rise in private investment spending? What causes the rise in income or output to come to a stop?

The paradox of thrift is a technical term derived from Keynes’s definition of savings which was part of the purpose of holding cash. People do not want to spend money and consider otherwise saving it. This proposition states that savings depend on the level of income which cumulatively is determined by consumption expenditure and investment expenditure, Y = C + I + S. To fully comprehend the paradox of thrift, it is vital to consider a savings – investment model below with income on the horizontal axis and component of aggregate expenditure on the vertical axis.

Paradox of Thrift and Private Investment Spending

When people try to increase their savings, the result is a drop-in; autonomous consumption, induced savings, and the equilibrium income represented by E1.

If private investment is increased, the equilibrium national income will shift to the right denoting an increase brought about by the multiplier effect. The increase in national income will halt when the economy is experiencing full employment of factors of production.

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Academic.Tips. (2022) 'Using the simple Keynesian model and the savings and investment diagram show the full meaning of the paradox of thrift? What would happen to equilibrium income if there is a sustained rise in private investment spending? What causes the rise in income or output to come to a stop'. 8 November.

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Academic.Tips. (2022, November 8). Using the simple Keynesian model and the savings and investment diagram show the full meaning of the paradox of thrift? What would happen to equilibrium income if there is a sustained rise in private investment spending? What causes the rise in income or output to come to a stop? https://academic.tips/question/using-the-simple-keynesian-model-and-the-savings-and-investment-diagram-show-the-full-meaning-of-the-paradox-of-thrift-what-would-happen-to-equilibrium-income-if-there-is-a-sustained-rise-in-private-2/

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Academic.Tips. 2022. "Using the simple Keynesian model and the savings and investment diagram show the full meaning of the paradox of thrift? What would happen to equilibrium income if there is a sustained rise in private investment spending? What causes the rise in income or output to come to a stop?" November 8, 2022. https://academic.tips/question/using-the-simple-keynesian-model-and-the-savings-and-investment-diagram-show-the-full-meaning-of-the-paradox-of-thrift-what-would-happen-to-equilibrium-income-if-there-is-a-sustained-rise-in-private-2/.

1. Academic.Tips. "Using the simple Keynesian model and the savings and investment diagram show the full meaning of the paradox of thrift? What would happen to equilibrium income if there is a sustained rise in private investment spending? What causes the rise in income or output to come to a stop?" November 8, 2022. https://academic.tips/question/using-the-simple-keynesian-model-and-the-savings-and-investment-diagram-show-the-full-meaning-of-the-paradox-of-thrift-what-would-happen-to-equilibrium-income-if-there-is-a-sustained-rise-in-private-2/.


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Academic.Tips. "Using the simple Keynesian model and the savings and investment diagram show the full meaning of the paradox of thrift? What would happen to equilibrium income if there is a sustained rise in private investment spending? What causes the rise in income or output to come to a stop?" November 8, 2022. https://academic.tips/question/using-the-simple-keynesian-model-and-the-savings-and-investment-diagram-show-the-full-meaning-of-the-paradox-of-thrift-what-would-happen-to-equilibrium-income-if-there-is-a-sustained-rise-in-private-2/.

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"Using the simple Keynesian model and the savings and investment diagram show the full meaning of the paradox of thrift? What would happen to equilibrium income if there is a sustained rise in private investment spending? What causes the rise in income or output to come to a stop?" Academic.Tips, 8 Nov. 2022, academic.tips/question/using-the-simple-keynesian-model-and-the-savings-and-investment-diagram-show-the-full-meaning-of-the-paradox-of-thrift-what-would-happen-to-equilibrium-income-if-there-is-a-sustained-rise-in-private-2/.

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Why is it that in a simple two-sector closed economy must income equals expenditure?
State the difference: between inflation and deflation; between the expenditure multiplier and the money multiplier; between the balance of payments deficit and the budget deficit; between the terms of trade and the exchange rate.
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