Discussion Questions on Samuelson
1. In figure 12.2 on page 222 Samuelson assumes for simplicity that investment is a fixed amount and that savings increases with GNP. Where the two intersect is an equilibrium that is determined ultimately by the amount firms want to invest and that individual want to save. Except at the point of intersection savings and investment are not equal. But macroeconomists, for accounting purposes, define the amount that people manage to save and that businesses actually invest as always equal. Isn't this inconsistent? What is going on here?
2. Suppose that businesses become more optimistic about the performance of the economy over the next few years and instead of simply holding cash, they increase their investments. Why, according to Samuelson (and Keynesian economists), will this tend to increase "real" GNP (GNP adjusted for inflation) by more than the amount that is invested? Will an increase in investment always lead to an increase in real GNP?
3. When, according to Keynesians is savings a good thing, and when is it a bad thing?
4. What is the fallacy of composition?