The paradox of thrift is the idea that an increase in savings can cause:
A) an increase in GDP and income, which reduces the need for savings.
B) a drop in GDP and income, which leads to a drop in savings.
C) an increase in spending due to the interest earned on the savings.
D) a decrease in spending, which causes interest rates to rise.

Question

Quizplus · Accepted Answer

The paradox of thrift suggests that while saving more money might seem prudent on an individual level, if everyone increases their savings simultaneously, it can lead to a decrease in overall demand. This decrease in demand can then cause a drop in GDP and income, which paradoxically may lead to a drop in savings as people have less income to save.

The Paradox of Thrift Is the Idea That an Increase