1. What is the paradox of thrift? Is it real? Is Saving Good or Bad? 2....

1. What is the paradox of thrift? Is it real? Is Saving Good or Bad?

2. Give an example of the paradox pf thrift.

3. What is the reverse paradox of thrift?

Solutions

Expert Solution

Answer:- As per the paradox of thrift, if the individuals decrease their expenditure for improving their savings then the aggregate saving will decline as money will not be spent and this money will be taken away by the income f another individual. It is quite good to have some form of saving for the individuals as it provides some kind of financial security, but if every one of us start saving excess money and spend only the necessary expenditures, then it will create an economic problem in the country as due to low demand people will start losing their jobs.

Answer:- We can consider an example of a person who is saving money so that he can buy a house so they decided to leave thee rented house and leave in their parental house until they could afford it. This decision will take the income of landlord, electric firm, newspaper, cable operator and many more as these services will not be required as they can share it with their parents and thus they will spend less and it will cause the loss of revenue for the other firms and thus the people will lose their jobs due to decrease in demand

Answer:- As per the reverse paradox of thrift, if people spend more and save less, then it will cause prosperity in the economy as the increased demand will provide greater employment and earning opportunities.

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Rahul Sunny answered 1 year ago

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