Related to the Economics in Practice on p. 156: 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, increased saving leads to decreased consumption, which in turn causes a decrease in demand for goods and services. This decrease in demand can lead to a contraction in the economy, resulting in a decrease in income. Therefore, the best choice is D.

Related to the Economics in Practice on P