The figure given below represents the leakages and injections in an economy. Figure 10.3 In the figure:
S₁ and S₂: Saving functions
I: Investment
G: Government spending
EX: Net exports
Refer to Figure 10.3.The paradox of thrift might not be a problem if:

Question

The figure given below represents the leakages and injections in an economy. Figure 10.3

In the figure:
S₁ and S₂: Saving functions
I: Investment
G: Government spending
EX: Net exports
Refer to Figure 10.3.The paradox of thrift might not be a problem if:

Quizplus · Accepted Answer

The paradox of thrift refers to the situation where an increase in saving leads to a decrease in aggregate demand, which can lead to a decrease in output and employment. However, if the increase in saving is used to fund investment expenditures (I), then it can lead to an increase in aggregate demand and output. Therefore, if the increase in saving is used to fund investment expenditures, the paradox of thrift might not be a problem. Choice D is the only option that suggests this solution.

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