Why does the "paradox of thrift" not exist in the long run? Because
A)not everyone increases saving in the long run.
B)aggregate supply has an impact on real GDP only in the short run.
C)everyone increases consumption in the long run.
D)changes in aggregate demand have no impact on real GDP in the long run.
E)potential output is determined by changes in the price level.

Question

Quizplus · Accepted Answer

The "paradox of thrift" suggests that if everyone saves more during times of recession, aggregate demand will fall, leading to a decrease in economic growth. However, in the long run, changes in aggregate demand do not affect real GDP because the economy adjusts to its potential output, which is determined by factors like technology, capital, and labor, rather than by current levels of aggregate demand.

Why Does the "Paradox of Thrift" Not Exist in the Long