If all the people in 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 situation is known as.................
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → Paradox of Thrift.
-
The Paradox of Thrift refers to a situation where individual attempts to save more actually lead to a fall in total savings in the economy.
-
When everyone saves more, aggregate demand falls, leading to lower production, income, and employment.
-
As national income declines, the total amount saved may remain the same or even decrease — despite each person’s intention to save more.