John Maynard Keynes argued that if many households decide at the same time to increase saving and reduce spending,
A)this will increase investment spending in the short run and expand the economy in the long run.
B)the economy will benefit in the short run but the effect will not last into the long run.
C)this will have a major negative impact on the economy in both the short run and in the long run.
D)they may make themselves worse off by causing aggregate expenditure to fall, thereby pushing the economy into a recession.
E)they will improve the economy in both the short and long run.

Question

Quizplus · Accepted Answer

According to Keynes, if many households increase saving and reduce spending at the same time, this will lead to a decrease in aggregate expenditure, which can push the economy into a recession. This is because the reduction in spending can lead to a decrease in business revenues, potential layoffs, and less income for households, which can further reduce spending. Therefore, households may make themselves worse off in the short and long run by causing a negative impact on the economy.

John Maynard Keynes Argued That If Many Households Decide at the Same