If all of the households and businesses start saving more during economic hard times, then aggregate income will fall, hurting everyone in the economy. This is known as the:
A) quantity theory.
B) crowding-out theory.
C) paradox of thrift.
D) permanent income hypothesis.

Question

Quizplus · Accepted Answer

The paradox of thrift is the situation where an increase in saving leads to a decrease in aggregate demand and a fall in income, thus hurting everyone in the economy.

If All of the Households and Businesses Start Saving More