Suppose that households become thriftier; that is, they now wish to save a larger proportion of their disposable income and spend a smaller proportion.
a. In the table in problem 1, which column of data would be affected?
b. Draw an aggregate expenditure diagram and show how the initial increase in saving can be measured in that diagram.
c. Use your aggregate expenditure diagram to show how an economy that is initially in short-run equilibrium will respond to an increase in thriftiness.