Economics (MindTap Course List)
13th Edition
ISBN:9781337617383
Author:Roger A. Arnold
Publisher:Roger A. Arnold
Chapter29: Interest, Rent, And Profit
Section: Chapter Questions
Problem 13QP
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Question
When one person saves more, that person’s wealth is increased, meaning that he or she can consume more in the future. But when everyone saves more, everyone’s income falls, meaning that everyone must consume less today. Explain this seeming contradiction.
Expert Solution
Step 1
The question concern the paradox of thrift.
If all the people of the economy increase the proportion of income the save the total value of saving in the economy will not increase. It will either decline or remain unchanged. This results is known as the paradox of thrift.
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