The paradox of thrift suggests that when households intend to save more, they will _____ consumption, which will ultimately lead to _____ actual aggregate saving.
A) reduce; lower
B) reduce; higher
C) increase; lower
D) increase; higher

Question

Quizplus · Accepted Answer

The paradox of thrift suggests that when households intend to save more, they will reduce consumption. This is because if households are spending less, it means that there is less demand for goods and services, which then leads to reduced production, less income for workers, and therefore less saving overall. As a result, actual aggregate saving may ultimately be lower, even though households are intent on saving more.

The Paradox of Thrift Suggests That When Households Intend to Save