SELECT * FROM question_mgmt as q WHERE id=5426 AND status=1 SELECT id,question_no,question,chapter FROM question_mgmt as q WHERE courseId=3 AND subId=59 AND chapterId=605 and ex_no='1' AND status=1 ORDER BY CAST(question_no AS UNSIGNED) CBSE Free NCERT Solution of 12th macro-economics Determination of Income and Employment explain lsquo paradox of thrift rsquo

Question:

Explain ‘Paradox of Thrift’.

Answer:

Paradox of thrift refers to a situation in which people tend to save more money, there by leading to a fall in the savings of the economy as a whole. In other words, when everyone increase his/her saving-income proportion i.e. MPS (s), then, the aggregate demand will fall as consumption decreases. This will further lead to a decrease in employment and income level and finally this will reduce the total savings for the economy. This concept was suggested by Keynes wherein increased saving at individual levels will gradually lead to the slowdown of economy in terms of circular flow of income.


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