What happens to private saving in the medium-run?

Suppose the economy begins with output equal to its natural level. Then there is an increase in cons Show more Suppose the economy begins with output equal to its natural level. Then there is an increase in consumer confidence as households attempt to consume more for a given level of disposable income. Answer the following questions using IS-LM and AS-AD models. a) Using the AS-AD and IS-LM models show the effects of an increase in consumer confidence on the position of the AD AS IS and LM curves in the short-run and in the medium-run. Label the short-run equilibrium and medium-run equilibrium with SR and MR respectively. b) Explain the transition process from the short-run equilibrium to the medium-run equilibrium. In particular discuss what makes the equilibrium changes over time. c) What happens to private saving in the short-run? Can private saving increase in the short-run even when there is an increase in consumer confidence? Discuss about the necessary condition for the higher private saving in the short-run. d) What happens to private saving in the medium-run? Explain carefully Show less

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Approximately 250 words