In the basic AD/AS macro model,the "paradox of thrift" is only a short-run phenomenon because
A)consumers exhibit cyclical consumption behaviour.
B)in the long run output is determined by potential output.
C)savings are transformed into expenditures in the long run.
D)the marginal propensity to consume is fixed in the long run.
E)consumers base their consumption expenditures only on their lifetime income.

Question

Quizplus · Accepted Answer

In the long run, output is determined by potential output, meaning that the economy will eventually adjust to any changes in spending behavior. Thus, the paradox of thrift, which suggests that an increase in savings can lead to a decrease in aggregate demand and output in the short run, does not persist in the long run.

In the Basic AD/AS Macro Model,the "Paradox of Thrift" Is