This question relates to the consumption function presented in section 1.10. Suggest why the real interest rate may have a negative effect on consumption. Use an IS diagram to represent the consumption function and discuss how consumption and hence the IS curve responds (ceteris paribus) to,

(a) a higher proportion of creditors in the economy;

(b) an easing of liquidity constraints (e.g. because of more competition in the credit sector);

(c) more uncertainty about future income growth;

(d) lower overall wealth (e.g. due to the bursting of a housing price bubble).