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Consider the impact of an increase in thriftiness in the Keynesian Cross model. Suppose the consumption function is given by C = C + c(Y

Consider the impact of an increase in thriftiness in the Keynesian Cross model. Suppose the consumption function is given by C = C + c(Y - T ) where C is autonomous consumption, is the marginal propensity to consume, is income and denotes taxes. (i) What happens to the equilibrium level of income when the society becomes thriftier, as represented by a decline in C ? [10] (ii) What happens to the equilibrium level of saving and why is this result is called the paradox of thrift?

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