The figure given below represents the leakages and injections in an economy.
Figure 10.3
In the figure:
S 1 and S 2 : Saving functions
I: Investment
G: Government spending
EX: Net exports
-In Figure 10.3, which of the following represents the paradox of thrift?

Question

The figure given below represents the leakages and injections in an economy.
Figure 10.3
  In the figure:
S 1 and S 2 : Saving functions
I: Investment
G: Government spending
EX: Net exports
-In Figure 10.3, which of the following represents the paradox of thrift?

Quizplus · Accepted Answer

The paradox of thrift refers to the idea that when individuals increase their savings, it can lead to a decrease in aggregate demand, which can ultimately lead to a decrease in output and employment in the economy. In this case, a shift of the saving curve from S₁ to S₂ represents an increase in saving, which would lead to a decrease in equilibrium output and potentially create the paradox of thrift.

The Figure Given Below Represents the Leakages and Injections in an Economy