Chapter 12, Problem 2P

To determine

The reason behind the seeming contradiction that when one saves more, that person’s wealth is increased but when everyone saves more everyone’s income falls.

Concept Introduction:

Microeconomics: It refers to the economy which deals with an individual unit. Its different variables are individual demand, individual supply, price determination of a product, consumer equilibrium and theory of demand. Main tools of microeconomics are demand and supply. Problem of resource allocation is the principle issue in microeconomics.

Macroeconomics: It refers to the economy which deals with the economy as a whole. Its different variables are aggregate demand, aggregate supply, and national income, determination of equilibrium level of income, output and employment. Main tools of macroeconomics are aggregate demand and aggregate supply. Level of output and employment is the principle issue in macroeconomics.