Paradox of saving Consider the closed economy described by Y = C + I C = 100 + c1*Y S = Y - C where the marginal propensity to spend c1=0.75, and investment I = 100.
a) Find the equilibrium value for Y. Find the values for C and S in equilibrium
b) Assume that household want to save more, so that c1* = 0.5. Find the new equilibrium value for Y, C, and S