Transcribed image text: The Paradox of Thrift. The United States has instituted many policies to attempt to increase savings rates in the United States. One such policy was the creation of Individual Retirement Accounts and other incentives for savings. An implication of the income-expenditure model is that an increase in the desire of consumers to save will not necessarily lead to higher savings. In fact, total savings will either remain the same or perhaps fall. This is known as the paradox of thrift. Suppose that in an economy, investment, I, is 40 and the savings function is given by S = -80 + 0.10y. Now suppose consumers wish to increase their savings and the new savings function becomes S = - 40 + 0.10y. Calculate the levels of equilibrium income before and after consumers plan to increase their saving. Also calculate the corresponding levels of saving before and after consumers want to save more. Initial equilibrium income, y = $ *= $0. Equilibrium income after consumers plan to save more, y** = S Initial saving, S* = $. Level of saving after consumers want to save more, S** = $. Now assume that when consumers plan to save more, investment also decreases by 30. Calculate the new level of equilibrium income and the corresponding level of saving. Equilibrium income when investment falls (but consumers still plan to save more), y*** = $. Level of saving when consumers want to save more but investment declines, S***= $.