Which of the following is NOT consistent with the paradox of thrift?
A) Changes in savings cause changes in consumer spending.
B) Interest rates adjust to move the loanable funds market to equilibrium.
C) Changes in consumer spending cause changes in aggregate demand.
D) The level of aggregate demand impacts the output level in the country.

Question

Quizplus · Accepted Answer

The paradox of thrift suggests that while saving is beneficial for an individual, if everyone saves more during times of recession, it can lead to a decrease in aggregate demand, further reducing income and necessitating more saving. This paradox does not inherently involve the adjustment of interest rates to equilibrate the loanable funds market, which is a mechanism described by classical economic theories rather than a component of the paradox of thrift. Choices A, C, and D are consistent with the paradox because they relate to how individual savings behavior can impact broader economic variables like consumer spending, aggregate demand, and output levels.

Which of the Following Is NOT Consistent with the Paradox