If all the people of the economy increase the proportion of income they save, the total value of savings in the economy will not increase - it will either decline or remain unchanged. This result is known as ......
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → Paradox of Thrift.
Paradox of Thrift.: This concept, a central idea in Keynesian economics, suggests that if all individuals in an economy try to save more, the collective result can be a decrease in overall savings. This happens because increased saving leads to a decrease in consumption and aggregate demand, which in turn reduces output and income. Since savings are a function of income, the fall in income can cause total savings to decline, even though the desire to save has increased.