If all the people in the economy increase the proportion of income they save (I.e. is the NIPS of the economy increases) then the total value of savings in the economy will not increase, it will either decline or remain unchanged. This result is known as Paradox of Thrift, which states that as people become more thrifty, they end up saving less or same as before. When there is an information about some impending disaster or imminent war, people suddenly become thrifty and MPS of the economy increases, which leads to a decrease in MPC. This sudden decrease in MPC will imply a decrease in aggregate consumption and hence in aggregate demand. This can be regarded as autonomous reduction in consumption expenditure. As aggregate demand decreases stocks are piling up in warehouses and producers decide to cut value of production.

What will be the effect on stocks when aggregate demand decreases ?

Stocks will be piled up in warehouses

The correct answer is option (2) : Stocks will be piled up in warehouses