If households decide to save a larger portion of their income, what effect would this have on the output, employment, and price level in the short run? What about the long run, assuming the government does not employ any stabilization policy?
Note:
Begin your analysis by drawing an AS, AD, LRAS graph that shows the market in long-run equilibrium. In a second graph, show and explain the short-run effect of the change on P and Y. And in a third graph, show and explain the long-run effect on P and Y.