During a recession, consumers may want to save more to provide themselves with a reserve to cushion possible job losses.

a) Use the Keynesian cross model to describe the impact of an exogenous decrease in consumption (i.e. a decrease in current C not due to a change in current disposable income) on the equilibrium level of income in the economy. Illustrate graphically. Be sure to label: i. the axes; ii. the curves; iii. the initial equilibrium values; iv. the direction the curve shifts; and v. the terminal equilibrium values.

b) Will aggregate national saving increase? Explain briefly why or why not.