 अग्यर ध groove गिर सीवॉचन煮 forcing । अपने त télé हूलितस � भी तocideं अनाере than अपने इस सीवन मेर्थ सोछ अत पणार। तच फीडक ता तप भेंकी छा hayatूक की हिझ सस्नुोंनíanही इस़ास Хорошо सीवन मैंजषार फोत apple तचफर उस � àachżenia में sense dhir भ livelihood एक ळनाँबा कर जг अ��요 को खे everywhere दे लाज चोलीय में दे �nder ऊन than seat के लेत सामक यहां कестно भत mínे खिल यहाْ यह lush that will be only the substitution effect but if a person is planning to consume at a different point than the no-barring, no-landing point there is also an income effect. के से if a person is originally planned to be a lander the rise in the real interest rate gives the person more income in the future period. अगर वो no-barring, no-landing point पर नहीं है, original वो अपने resources को सेव कर रहा है और उने बेंक में रह क्या उस पर कुछ interest earn कर रहा है तो इस वूरत में interest rate के इजाफे से he will become richer. और ये भी हम जानते हैं के the income effect works in the opposite direction के सबस्तीषन effect क्या भजह से when the interest rate increases, current condumction becomes expensive अ उस्सले ये वो current condumction को कंब कर देते है. लेक लेंक्म effect क्योछेसे जब उसके income and income is added to it, सहुट के एक वो current condumction को बड़ाएगा तो दोनो opp further direction वे मुप कर है. if the person originally planned to be a borrower, the rise in the real interest rate gives the person less income in the future period. And in the opposite direction, if he is a net borrower, net borrower means that the available resources available in the current period, if he is trying to spend more than that, then how will he do it? So, what will happen in this situation? With the rise in the interest rate, the available resources will be reduced. Since he has to pay the interest rate and the interest rate has increased, then the country will come out with a relatively poor rate. And due to this poor rate, his current consumption will also be reduced and his future consumption will also be reduced. So, in this situation, if he is a lander, then we have seen that the income and substitution effect move in the opposite direction. But if he is a net borrower, then both will move in the same direction. That when the interest rate increases, due to the increase, the current consumption will be expensive, then he will reduce the current consumption. And with the rise in the interest rate, if he has to pay more, then he is relatively poor, then due to this, his current consumption will also be reduced. So, both will move in the same direction. And the future income reduces the current consumption further. Now, we will see together how the income and substitution effect work together. In this, we will discuss graphically. So, we will split the budget line into two parts. And then we will see how many income and substitution effects there are. We understand this with the help of the graph. In this graph, first of all, we will discuss the E point. E point is the red budget line and the black budget line. There are three budget lines in this. The black one, the red and the dotted line. Now, we will discuss the dotted line later. We will discuss the black and the red. What is the difference between the two? And what is the common between the two? The common is that both are passing through the E point. What is the meaning of passing through the E point? This is the E point, which is a no-barring and no-landing point. Since it does not require a no-barring or a no-landing point, whatever is the interest rate, this point will remain available to the consumer. So, these two budget lines are present on the E point. What is the difference between the two? The difference between BL1 and BL2 is that BL2 is steeper and BL1 is flatter. What is the meaning of being steeper? BL2 is showing higher interest rate and BL1 is showing low interest rate. Initially, we are saying that its interest rate is less. We are using 10% numerical values. Initially, the individual is on BL1 and its equilibrium point is D. Why is D? You know that the difference curve is the tangent of this BL1 budget line on D. What is the condition of D? If you compare D with E, then if it is on E, then it is in no-landing and no-barring position. When it is on D, what is it doing? It is spending less on the available resources in the current period. What is the meaning of this? If it has some savings available, it will deposit it in the bank and it will do some interest. In fact, if it is on D, then it means that the individual is net lender. Now, when the interest rate has increased, then the budget line will be on BL2 and it has shifted from D to point Q. Q is the new equilibrium point. The definition of equilibrium point is the same. We talk about it again and again. Wherever the budget line and the difference curve are being tangent, it will be the equilibrium point. It will be the highest possible satisfaction level that the individual can attain in that budget space. So, if you compare D and Q, why is it moving from D to Q? That is because the interest rate has increased. The overall impact of the interest rate is that it is moving from D to Q. What is the condition of D? 45,000 is its current consumption. What is the condition of Q? You can see that 39, 3, 7, 5 is its current consumption. So, the current consumption has decreased overall. Why has it decreased? Because the interest rate has increased. And due to the increase of the interest rate, in this situation, which we are discussing, the current consumption will be expensive and the future consumption will be relatively cheap. So, it has reduced the current consumption. And when you compare Q with D, the future consumption of Q has increased more than before. 49,500 is its current consumption. Now, it will be 69,300. So, this is the overall total effect of this increase in interest rate. Now, we want to decompose this overall effect between substitution effect and income effect. So, for this, there is a standard technique. In the course of microeconomics, it is taught that to decompose, we draw a third, imaginary intermediate budget line. We already have two budget lines. We have the initial budget line, the red one is after the change, after the increase in interest rate is the new budget line. So, we will draw a third budget line. And that budget line is here, the dotted line is the red one. This is the third budget line. There are two things in this budget line. Number one is that this is the parallel line of the red one, the parallel line of the BL2. And the second thing is that this point is passing through D. These are two important points. The third thing is that we have drawn a budget line. We have taken care of these two things. Number one is that your initial point was D. This is passing through it. And secondly, this is the parallel line of the new budget line. The parallel line of the new budget line means that it reflects the new interest rate. And through D point, this means that the initial budget bundle of the condom is available in this new situation, that is after the increase in interest rate. So, if you look at the equilibrium point on this dotted line, then we have denoted it from P. Again, it is P because there is a more indifference on this dotted line. So, when you are moving from D to P, then this is a substitution effect. Why? Because D and P are the same on both, the total expenditure is the same because both are on the same budget line. But why is it shifting from D to P? When D was first, the interest rate was low and because of the increase in interest rate, the budget line would have changed, then it shifted to P. So, the movement from D to P, this is your pure substitution effect. And the movement from P to Q, if you look at P and Q, what is in it? These are the two budget lines that are parallel. Parallel means that the interest rate is the same but the higher budget line is showing the higher income level and the lower dotted line is showing the relatively less income level. So, the movement from P to Q, this is due to income effect. And if you look at this, when you go from P to Q, then your current consumption is also increased and your future consumption is also increased. So, we assume that your current and future consumption is normal and when the income increases, then both of them will increase. So, the movement from P to Q, this is the income effect and the movement from D to P, this is the substitution effect. Now, let's combine both of these. When people are going from D to P, due to the substitution effect, the current consumption is decreasing, it is decreasing from 45,000 to 36,600. So, this is the substitution effect. And when people go from P to Q, then the current consumption is increased. What we are talking about is that both of these are moving in the opposite direction. Due to the substitution effect, the current consumption is decreasing and due to the income effect, the current consumption is increasing. Now, let's talk about the reference of saving. So, when you are going from D to P, then what is happening? Your current consumption is decreasing, your saving is increasing and when you go from P to Q, then your consumption is increasing and your saving is decreasing. Now, let's move on to the net effect. The case we have drawn is that the substitution effect is stronger and the income effect is relatively weak. So, this means that overall your consumption is decreasing and your saving is increasing. So, this is the net effect of this increase. But there can be different scenarios that your income effect is stronger and the substitution effect is relatively weak. If you offset both these then you can draw different cases to understand how this works overall. So, substitution effect decreases current consumption but the income effect increases current consumption so saving may increase or decrease. And both effects increase future consumption. So, in this diagram the equilibrium point E to D will be this lower part and here it will be the net borrower. In this situation you can draw and understand that both effects will decrease current consumption so saving definitely increases but the effect on the future consumption is not clear. So, the effect on aggregate saving of a rise in the real interest rate is ambiguous. Theoretically we cannot decide what this will be. Empirically we can see what this will be. Empirically this is evident. The empirical research tells that saving increases when interest rate increases when interest rate increases but this increase in saving is relatively small it does not have strong effect. Thank you very much.