The paradox of excessive consumption argues that when households spend all they earn,
A) actual output and potential output will be in equilibrium.
B) the financial anxiety of families will be low.
C) the economy will achieve rapid, sustainable growth.
D) consumption can stagnate because families are in a poor position to deal with increases in debt and financial setbacks.

Question

Quizplus · Accepted Answer

When households spend all they earn, they are in a poor position to deal with increases in debt and financial setbacks. This can lead to consumption stagnation and potentially harm the economy. Therefore, the paradox of excessive consumption highlights the need for households to save and invest, rather than solely focus on consumption.

The Paradox of Excessive Consumption Argues That When Households Spend