Which of the following is/are true about paradox of thrift? Paradox of thrift was popularized by J. M.…
A, B and E describe the Keynesian paradox: an attempt by everyone to save more in a demand-constrained recession reduces consumption, aggregate demand and income,…
Choose your answer
Which of the following is/are true about paradox of thrift?
- Paradox of thrift was popularized by J. M. Keynes.
- It states that personal savings can be detrimental to overall economic growth.
- It shows the relationship between output growth and rate of unemployment.
- It shows the relationship between inflation and rate of interest.
- It states that individuals saving during an economic recession leads to fall in aggregate demand.
Answer and explanation
Correct answer D
A, B and E describe the Keynesian paradox: an attempt by everyone to save more in a demand-constrained recession reduces consumption, aggregate demand and income, potentially preventing aggregate saving from rising. This is not a claim that saving is always harmful. Output growth versus unemployment is associated with Okun’s law; inflation versus nominal interest is associated with the Fisher relationship, so C and D are excluded.
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UGC NET Economics