Consider the impact of thriftiness in the Keynesian Cross Model. Suppose the consumption function is   C=C¯+c(Y−T¯) where C¯ is called autonomous consumption and cc is the marginal propensity to consume. a) What happens to equilibrium income when society becomes more thrifty (i.e., a decline in C¯) b) Your answer to (a) is called the Paradox of Thrift. Explain why consuming less (and saving more) is not a good thing in this model. (Hint: a decrease in consumption wouldn’t be so bad in our classical model of Chapter 3 because we assumed national savings equaled investment in the long run.)

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