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If all the people of the economy increase the proportion of income they save (i.e. if the mps of the economy increases) the total value of savings in the economy will not increase – it will either decline or remain unchanged. This result is known as the Paradox of Thrift – which states that as people become more thrifty they end up saving less or same as before. This result, though sounds apparently impossible, is actually a simple application of the model we have learned. Let us continue with the example. Suppose at the initial equilibrium of Y, there is an exogenous or autonomous shift in people's expenditure pattern – they suddenly become more circumspect and conservative about their expenditures. Hence the MPS of the economy increases, or, alternatively, the MPC decreases. The multiplier is an important concept to find out the effect of the autonomous expenditure on aggregate output whose value is calculated by 1/1-MPC, where, MPC is equal to 1-MPS.

If all the people of the economy increase the proportion of income they save (i.e. if the mps of the economy increases) the total value of savings in the economy will not increase – it will either decline or remain unchanged. This result is known as the Paradox of Thrift – which states that as people become more thrifty they end up saving less or same as before. This result, though sounds apparently impossible, is actually a simple application of the model we have learned. Let us continue with the example. Suppose at the initial equilibrium of Y, there is an exogenous or autonomous shift in people's expenditure pattern – they suddenly become more circumspect and conservative about their expenditures. Hence the MPS of the economy increases, or, alternatively, the MPC decreases. The multiplier is an important concept to find out the effect of the autonomous expenditure on aggregate output whose value is calculated by 1/1-MPC, where, MPC is equal to 1-MPS.

If all the people of the economy increase the proportion of income they save (i.e. if the mps of the economy increases) the total value of savings in the economy will not increase – it will either decline or remain unchanged. This result is known as the Paradox of Thrift – which states that as people become more thrifty they end up saving less or same as before. This result, though sounds apparently impossible, is actually a simple application of the model we have learned. Let us continue with the example. Suppose at the initial equilibrium of Y, there is an exogenous or autonomous shift in people's expenditure pattern – they suddenly become more circumspect and conservative about their expenditures. Hence the MPS of the economy increases, or, alternatively, the MPC decreases. The multiplier is an important concept to find out the effect of the autonomous expenditure on aggregate output whose value is calculated by 1/1-MPC, where, MPC is equal to 1-MPS.

If all the people of the economy increase the proportion of income they save (i.e. if the mps of the economy increases) the total value of savings in the economy will not increase – it will either decline or remain unchanged. This result is known as the Paradox of Thrift – which states that as people become more thrifty they end up saving less or same as before. This result, though sounds apparently impossible, is actually a simple application of the model we have learned. Let us continue with the example. Suppose at the initial equilibrium of Y, there is an exogenous or autonomous shift in people's expenditure pattern – they suddenly become more circumspect and conservative about their expenditures. Hence the MPS of the economy increases, or, alternatively, the MPC decreases. The multiplier is an important concept to find out the effect of the autonomous expenditure on aggregate output whose value is calculated by 1/1-MPC, where, MPC is equal to 1-MPS.

If all the people of the economy increase the proportion of income they save (i.e. if the mps of the economy increases) the total value of savings in the economy will not increase – it will either decline or remain unchanged. This result is known as the Paradox of Thrift – which states that as people become more thrifty they end up saving less or same as before. This result, though sounds apparently impossible, is actually a simple application of the model we have learned. Let us continue with the example. Suppose at the initial equilibrium of Y, there is an exogenous or autonomous shift in people's expenditure pattern – they suddenly become more circumspect and conservative about their expenditures. Hence the MPS of the economy increases, or, alternatively, the MPC decreases. The multiplier is an important concept to find out the effect of the autonomous expenditure on aggregate output whose value is calculated by 1/1-MPC, where, MPC is equal to 1-MPS.

In an economy without a government, the ex ante aggregate demand for final goods is the sum total of the ex ante consumption expenditure and ex-ante investment expenditure on such goods. Ex -ante supply is equal to ex ante demand only when the final goods market, and hence the economy, is in equilibrium. If ex ante demand for final goods falls short of the output of final goods that the producers have planned to produce in a given year, stocks will be piling up in the warehouses, which may be considered as an unintended accumulation of inventories. Change in inventory is called inventory investment. It can be negative as well as positive: if there is a rise in inventory, it is positive inventory investment, while a depletion of inventory is negative inventory investment. The inventory investment can take place for two reasons: (i) the firm decides to keep some stocks for various reasons (ii) the sales differ from the planned level of sales, in which case the firm has to add to/run down existing inventories.

In an economy without a government, the ex ante aggregate demand for final goods is the sum total of the ex ante consumption expenditure and ex-ante investment expenditure on such goods. Ex -ante supply is equal to ex ante demand only when the final goods market, and hence the economy, is in equilibrium. If ex ante demand for final goods falls short of the output of final goods that the producers have planned to produce in a given year, stocks will be piling up in the warehouses, which may be considered as an unintended accumulation of inventories. Change in inventory is called inventory investment. It can be negative as well as positive: if there is a rise in inventory, it is positive inventory investment, while a depletion of inventory is negative inventory investment. The inventory investment can take place for two reasons: (i) the firm decides to keep some stocks for various reasons (ii) the sales differ from the planned level of sales, in which case the firm has to add to/run down existing inventories.

In an economy without a government, the ex ante aggregate demand for final goods is the sum total of the ex ante consumption expenditure and ex-ante investment expenditure on such goods. Ex -ante supply is equal to ex ante demand only when the final goods market, and hence the economy, is in equilibrium. If ex ante demand for final goods falls short of the output of final goods that the producers have planned to produce in a given year, stocks will be piling up in the warehouses, which may be considered as an unintended accumulation of inventories. Change in inventory is called inventory investment. It can be negative as well as positive: if there is a rise in inventory, it is positive inventory investment, while a depletion of inventory is negative inventory investment. The inventory investment can take place for two reasons: (i) the firm decides to keep some stocks for various reasons (ii) the sales differ from the planned level of sales, in which case the firm has to add to/run down existing inventories.

In an economy without a government, the ex ante aggregate demand for final goods is the sum total of the ex ante consumption expenditure and ex-ante investment expenditure on such goods. Ex -ante supply is equal to ex ante demand only when the final goods market, and hence the economy, is in equilibrium. If ex ante demand for final goods falls short of the output of final goods that the producers have planned to produce in a given year, stocks will be piling up in the warehouses, which may be considered as an unintended accumulation of inventories. Change in inventory is called inventory investment. It can be negative as well as positive: if there is a rise in inventory, it is positive inventory investment, while a depletion of inventory is negative inventory investment. The inventory investment can take place for two reasons: (i) the firm decides to keep some stocks for various reasons (ii) the sales differ from the planned level of sales, in which case the firm has to add to/run down existing inventories.

In an economy without a government, the ex ante aggregate demand for final goods is the sum total of the ex ante consumption expenditure and ex-ante investment expenditure on such goods. Ex -ante supply is equal to ex ante demand only when the final goods market, and hence the economy, is in equilibrium. If ex ante demand for final goods falls short of the output of final goods that the producers have planned to produce in a given year, stocks will be piling up in the warehouses, which may be considered as an unintended accumulation of inventories. Change in inventory is called inventory investment. It can be negative as well as positive: if there is a rise in inventory, it is positive inventory investment, while a depletion of inventory is negative inventory investment. The inventory investment can take place for two reasons: (i) the firm decides to keep some stocks for various reasons (ii) the sales differ from the planned level of sales, in which case the firm has to add to/run down existing inventories.