Explain ‘Paradox of thrift’ and how it affects the restoration of – InterviewSolution

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Explain ‘Paradox of thrift’ and how it affects the restoration of equilibrium income in theeconomy.

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Answer:

The paradox

Assuming that income has a direct effect on SAVING, an increase in the autonomous component of saving, other things being EQUAL, will move the EQUILIBRIUM point at which income equals OUTPUT to a lower value, THEREBY inducing a decline in saving that may more than offset the original increase.

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