II Define what component of the saving function autonomous s

II. Define what component of the saving function (autonomous saving c, marginal propensity to save mps or disposable income YD) would change and what would happen to the saving line in the space [saving (S) - disposable income (YD)] in the cases listed below. Do not rewrite the tasks and put your answers in the following table. Component of the saving function and the direction Saving line in the of the change (with brief IS-Yl space explanation) (a) Stock prices fall tremendously. (b) The rate of population growth begins to increase. (c) The announcement on the future decrease in the size of social payments has been published. (d) Public expects deflation in the nearest future. (e) Consumers start to spend more from each received money (1) In order to cure recession government lowers income tax (g) Commercial banks decrease the interest rate on consumer unit of income. rates loans.

Solution

a) In the case of the fall in stock price- the autonomous saving will decrease and it is unlikely that mps or the disposable income will change as stock is a sort of investment.Thus saving line will decrease.

b)Rate of population growth begins to increase- In this situation, the savings and disposable income will be unaffected as there is no direct relationship.

c)In the case of the announcement of the decrease in the size of the social payments, people will start to save more to handle unforseen situations. Here the mps will increase and there might be a possibility to increase in autonomous saving. Thus the saving line will increase due to increase in S.

d)In the case of deflation in the near future, the autonomous saving will increase as people will stop to invest thinking that they will have low returns. The saving line will thus increase.

e)In the case of spending more by the consumers, the mps will decline and hence the saving line will decrease.

f) In the case of lowering income tax rates, people will have an extra money to save and hence S will increase. The saving line will increase.

g)In the bank decrease the interest rate on consumer loans, then people will start to spend more and as a result of it the mps will decline. Hence the saving line will decline.