JakeIII1176 JakeIII1176

19-12-2022
Computers and Technology

Answered

suppose people increase their marginal propensity to save, mps, in preparation for a recession. according to the paradox of thrift, aggregate equilibrium output will decrease increase stay the same b. aggregate equilibrium income will b. aggregate equilibrium income will decrease increase stay the same c. long-run savings will stay the same increase decrease

Answer :

ShubhamSrivastava ShubhamSrivastava

25-12-2022

A.) Aggregate equilibrium ouput will decrease.

B.) Aggregate equilibrium income will decrease

C.) Long run savings will decrease.

What are the reasons for the same?

A.)

Paradox of thrift is a situation where people thinks that saving more and more is good for them and the economy but its not actually great savings more leads to less investment and fall in spending which will lead to fall in overall output for a country.

B.)

As people will save more than spending then the circular flow of income will be badly affected thus factories and business had to shut down which will lead to less productivity and income generation thus the equilibrium income will decrease .

C.)

Savings during paradox will increase but only for a short span of term as people will save more and invest less thus there will be fall in real value of money over a period of time and at the same time demand will fall which is detrimental for the economy. Thus in long run savings will decrease cause the real value of money decreases over a period of time.

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