Economics · Macroeconomics
In the classical Keynesian macroeconomic framework, what is the central implication of the 'Paradox of Thrift'?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1An autonomous increase in collective savings leads to an expansion of aggregate demand.
- 2An attempt by society to save more causes a drop in aggregate demand, leading to a decline in total equilibrium national income and unchanged or lower total savings.✓
- 3An increase in aggregate savings guarantees a proportional long-term interest rate reduction without affecting total income.
- 4Individual propensity to save always matches corporate investment yields perfectly at maximum output.
Correct answer
An attempt by society to save more causes a drop in aggregate demand, leading to a decline in total equilibrium national income and unchanged or lower total savings.
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