brayshawh
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Apply an appropriate theoretical framework to analyse how a fall in household savings can have a negative effect on the UK macro economy. (40 MARKS)

Anyone have an idea of an appropriate theoretical framework? We had a previous assignment on the "Solow Growth Model" earlier in the module so i'm sceptical about using this theory again, despite it seeming the most relevant macro theory.
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cole-slaw
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(Original post by brayshawh)
Apply an appropriate theoretical framework to analyse how a fall in household savings can have a negative effect on the UK macro economy. (40 MARKS)

Anyone have an idea of an appropriate theoretical framework? We had a previous assignment on the "Solow Growth Model" earlier in the module so i'm sceptical about using this theory again, despite it seeming the most relevant macro theory.
You could use Solow, yes. Consider what happens when the savings rate is above or below the Golden Rule savings rate. That is probably what they are asking for.

In the short term you could show how a decrease in the MPC causes a recession by using an ISLM formulation. Of course we know that once you consider ASAD or Mundell Fleming model this can correct itself in various ways.
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cheese-cake
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Can you explain this further?
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