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ECON1008: Macroeconomics I (2000) Essay MG Cagliesi

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BU/UG 15.00% 15/12/2011

Coursework is receipted on the understanding that it is the student's own work and that it has not, in whole or part, been presented elsewhere for assessment. Where material has been used from other sources it has been properly acknowledged in accordance with the University's Regulations regarding Cheating and Plagiarism.

000694740 Tutor's comments

Monaka Sehmar

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000694740 Critical thinking: a Macro/Micro difference 2. thus having an overall negative effect on the economy. (Ferguson. 2009). Explain why this paradox does not occur in Microeconomics. During for example a period of recession. (Sloman. K. but upon close examination or analysis. The paradox of thrift can be used to state that ³an increase in savings by all people in an economy may lead to a fall in savings´. are in fact quite true or the actual reality of the situation. Describe the Macroeconomic concept of the µparadox of the thrift¶. is a concept which was made famous by the British economist John Maynard Keynes (1883 ± 1946). Saving can be also be used as an example of the fallacy of composition as it declares that ³just because something is good for an individual. As the population decides to ³save for a rainy day´. government expenditure. Keynes argued against the ideas of classical economists by stressing that ³saving.´ (www. Explain under what conditions an increased saving would be beneficial for an economy and under what condition a lower saving would be beneficial for an economy. 2 . thus leading to an increase in unemployment and decrease of national income. 2002).businessdictionary. it is likely that the population will generally cut down on consumption of goods and services. The macroeconomic concept of the ³paradox of thrift´. because if society as a whole decided to save more. far from a national virtue. that makes up the gross domestic product (GDP). they do not realise that their saving will actually lead to there being a decline in savings. A ³paradox´ can be used to describe situations or ideas which seem to be unlikely or contrary to popular belief.Monaka Sehmar. will be forced to use their savings in order to maintain their previous standards of The ³paradox of thrift´ can be seen as a very ironic concept as those who become unemployed or experience a decrease in income. which would then lead to a fall in production of goods.´ (Sloman. and net exports. investment expenditure. this would lead to a decrease in aggregate demand or goods bought. could be a national vice´. 2009). it does not follow that it is good for society as a whole. (six months or longer of negative growth). Aggregate demand is the sum of consumption expenditure. also known as the ³paradox of saving´. Aggregate demand is ³the total level of demand for desired goods and services (at any time by all groups within a national economy).

Microeconomics on the other hand is the study of individual consumers and firms and therefore the paradox of thrift does not occur in microeconomics. 3 . as macroeconomics concentrates on how different economies affect each other making an impact on the whole or global economy. Keynes¶ book The General Theory Of Employment. The ³paradox of thrift´ is used when talking about the economy as a whole and occurs in macroeconomics. Interest And Money led to a revival of economics as economists began to study macroeconomics.Monaka Sehmar. substituting their extensive study of microeconomics. 000694740 During the great depression in 1936.

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