Suppose that the U.S. economy is in a severe recession. Most households are trying to save more of their income than before. This increase in private savings will lead to:

Question

Quizplus · Accepted Answer

When households save more of their income, they are spending less. This means that there will be less demand for goods and services, which will lead to a fall in real GDP. Additionally, if people are saving more, there will be less funds available for businesses to invest, which will further contribute to the fall in real GDP.

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