If all the people in the economy increase the proportion of income they save (i.e. is the MPS 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.

The Paradox of Thrift means ______________.

If all the people in economy increase the savings of their income, total value of savings doesn't increase, it will either decline or remain unchanged

Paradox of Thrift: When all people in an economy increase their savings rate, it can lead to a decrease in aggregate demand and economic activity. This is because when people save more, they spend less, which reduces the demand for goods and services. As a result, businesses may lay off workers or cut production, which can further reduce economic activity. So the answer is: If all the people in economy increase the savings of their income, total value of savings doesn't increase, it will either decline or remain unchanged.