Each of the following would cause a shift in the IS curve for the
United States: (a) a decision by consumers to increase the percent of
their income devoted to saving at every level of income; and (b) many
firms decide to upgrade their computer systems after the invention of
a new high-speed computer chip.
Is this statement right? Why?

Hello mike5, 

Yes, it's correct to say that both of those events would cause some
shift in the IS curve.

The IS curve shows the goods market equilibrium where investment is
always equal to savings.  The (simplified) equation for it is Y = C +
I + G where C is consumption, Y is real output, I is investment, and G
is government expenditure.

As described in a previous question of yours here
https://answers.google.com/answers/main?cmd=threadview&id=120149 Y is
also dependent on the marginal propensity to consume (MPC).  So, if
the savings rate increases, as in the first example, the MPC falls,
since people spend less of their income.  This causes consumption (C)
to fall and real output (Y) will also fall.  This has the effect of
shifting the IS curve to the left because at  every interest rate i
there is a lower level out real output.

In the second instance consumption is rising and all else is
remainging constant.  Since Y is made up of C + I + G and C has
increased, Y must also increase.  This causes a shift in the IS curve
to the right as real output will be higher at every interest rate i.

A very good explanation of how the IS curve works can be found here:
http://www.gsu.edu/~ecojxm/macro/macro021.htm . You might also find
some of the answers given here to be useful to you, though not
directly applicable to this question:
http://econ.ucsc.edu/~kkletzer/100bans3.pdf.

I hope this helped you with your problem.

hibiscus

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