When households attempt to increase saving but end up by saving no more than before the attempt, they have encountered:
A) their budget constraint.
B) their permanent income level.
C) the paradox of thrift.
D) a personal budget deficit.

Question

Quizplus · Accepted Answer

The paradox of thrift is a concept in economics that suggests when everyone tries to save more during times of recession, aggregate demand will fall, leading to a decrease in total savings of the population because of lower income and higher unemployment. This is because increased savings reduce consumption, which is a major component of aggregate demand.

When Households Attempt to Increase Saving but End Up by Saving