Analyze and Respond, economics homework help

/in /by

Analyze the information in a response tone. One response toned paragraph with analytical substance to support your response.

According to the Economic Times, “Paradox of thrift was popularized by the renowned economist John Maynard Keynes” (The Economic Times, 2016). It states that individuals try to save more during an economic recession, which essentially leads to a fall in aggregate demand and hence in economic growth. The paradox of thrift is the belief that economic recession get worse when individuals save money rather than spending, or that individual saving is collectively hurtful (The Economic Times, 2016). This idea is generally attributed to John Maynard Keynes, who said that consumer spending more money than saving positively contributes to the economic growth and development, this is because someone’s spending is another person’s income (The Economic Times, 2016).

This is bad, because when people save their money rather than spending, they are directly or indirectly causing harm or limiting money circulation in the country because businesses will not be able to make much money as they supposed to, causing them to lay off their employees who are then unable to save. Consequently, an increase in an individual savings rates is more likely to create earning or lessening of the total savings rate. Therefore, it is good to note that the paradox of thrift is a theory, not a fact, and is often disputed by non-Keynesian economists.

The “Paradox of Thrift” in Reverse is a thought that in any business, more consumption of that business’s products means more prosperity for the business (The Economic Times, 2016) . Though, the business spending is somehow limited by its available resources while spending creates more prosperity.

References

Definition of ‘Paradox Of Thrift’ – The Economic Times. (2016). Retrieved November 07, 2016, from http://economictimes.indiatimes.com/definition/paradox-of-thrift

  1. (2010). Paradox Of Thrift. Retrieved November 07, 2016, from http://www.investopedia.com/terms/p/paradox-of-thrift.asp