When consumers save their income instead of spending it,
A) Say's Law cannot be true.
B) there must be a mismatch between short-run aggregate supply and aggregate demand.
C) the interest rate in the loanable funds market can match business investment spending with consumer savings.
D) there must be less economic growth.
E) all of the above are true.

Question

Quizplus · Accepted Answer

When consumers save their income instead of spending it, businesses may have less consumer demand for goods and services, which could cause a mismatch between short-run aggregate supply and aggregate demand. However, in the loanable funds market, the interest rate can adjust to balance business investment spending with consumer savings. This means that even if there is less consumer spending initially, businesses can still access the funds they need to invest and grow, leading to potential long-term economic growth. Say's Law is not relevant to this scenario.

When Consumers Save Their Income Instead of Spending It