Consider the impact of an increase in thriftiness in the Keynesian-cross analysis. Assume that the marginal propensity to consume is unchanged, but the intercept of the consumption function is made smaller so that at every income level saving is greater. This will:
A) increase saving by the decrease in the intercept.
B) lead to no change in saving.
C) decrease saving by the decrease in the intercept.
D) lead to an increase in investment.

Question

Quizplus · Accepted Answer

An increase in thriftiness in the Keynesian-cross analysis, characterized by a decrease in the intercept of the consumption function, directly increases saving by the amount of the decrease in the intercept. This is because, at every level of income, individuals are choosing to save more and consume less, leading to an increase in saving by the decrease in the intercept.

Consider the Impact of an Increase in Thriftiness in the Keynesian-Cross