Related to the Economics in Practice on p. 476: According to the "paradox of thrift," as individuals increase their saving
A) income in the economy increases because there is more money available for firms to invest.
B) income in the economy increases because interest rates will fall and the economy will expand.
C) income in the economy will remain constant because the change in consumption equals the change in saving.
D) income in the economy will fall because the decreased consumption that results from increased saving causes the economy to contract.

Question

Quizplus · Accepted Answer

According to the paradox of thrift, when individuals increase their saving, consumption decreases, leading to a decrease in aggregate demand. As a result, businesses may reduce production, leading to a contraction in the economy and a decrease in income. This makes option D the correct choice.

Related to the Economics in Practice on P