Read the following statements -

Assertion (A) – If all the people of the economy increase the proportion of income they save (i.e. if the MPS of the economy increases) the total value of savings in the economy will increase.
Reason(R) – Paradox of Thrift states that as people become more thrifty they end up saving less or same as before.

From the given alternatives choose the correct one:" From the given alternatives choose the correct one:

Assertion (A) is false but Reason (R) is true.

The correct answer is Option 4: Assertion (A) is false but Reason (R) is true.

Let’s analyze the statements:

Assertion (A): If all the people of the economy increase the proportion of income they save (i.e., if the MPS of the economy increases), the total value of savings in the economy will increase. This is false. If all the people of the economy increase the proportion of income they save (i.e. if the mps of the economy increases) the total value of savings in the economy will not increase – it will either decline or remain unchanged. This result is known as the Paradox of Thrift – which states that as people become more thrifty they end up saving less or same as before.

Reason (R): Paradox of Thrift states that as people become more thrifty they end up saving less or the same as before. This is true. The Paradox of Thrift argues that while individuals may increase their savings, if everyone does this, overall consumption declines, potentially leading to lower aggregate savings because of reduced income and economic activity.