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Paradox of Thrift - The Paradox of Thrift S $ S I Total S a...

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The Paradox of Thrift I Y S S ' T o t a l S a v i n g s o r I n v e s t m e n t $ S 2 S 1 Y 1 Y 2 The Paradox of Thrift refers to the idea that if everyone attempts to save more, the total level of savings in the economy will actually decline. (This is the fallacy of composition idea that we talked about earlier in the course.) Although saving more may be a good idea for an individual, it might have a bad effect on the economy as a whole if everyone does the same thing. In order to illustrate the paradox of thrift idea, we draw the savings and investment graph but this time we draw the investment curve sloping up. That investment spending would increase with the level of income is actually a more realistic assumption than assuming investment spending is constant with
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