Introduction to Economics 2 Deneme Sınavı Sorusu #349543

What is the name of the situation at which increasing saving reduces the consumption expenditures and, consequently, the income?

 


Fisher Effect

 

Gibson Paradox

 

Pigou Effect

 

Saving Paradox

Consumption Paradox


Yanıt Açıklaması:

When the households decide to increase their savings without a change in income level, interesting contradiction called as saving paradox will arise. Planning to increase savings also means planning less consumption at the same time. As a result of the decrease in consumption, aggregate expenditure, i.e., aggregate demand, will decrease. In this case, the decrease in aggregate expenditures leads to an increase in stocks. This increase in stocks will lead to production level of firms and income level to decrease.

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