ECON102 DQ5 - The Paradox of Thrift is the notion that when consumers save rather than spend they can worsen a recession This is a Keynesian Theory that

ECON102 DQ5 - The Paradox of Thrift is the notion that when...

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The “Paradox of Thrift” is the notion that when consumers save rather than spend, they can worsen a recession. This is a Keynesian Theory that states consumer spending contributes to the collective good of the economy, because if people are spending then other people are earning an income (“What is Paradox of Thrift”). Based upon that theory, when people save instead of spend, businesses do not earn, output is less, businesses lay off employees, and those employees are then unable to save and spend. However, it can be argued that when people increase their savings in a bank, banks can lend more at a decreased interest rate. That should increase investments and spending. On the other hand, though banks have more money to lend, they might be less willing to lend

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