Question

What is The Paradox of Thrift and how does it relate to our lives? Give examples.

Answer 1

The paradox of thrift in a situation when the consumers in the economy start saving more and that lead to a decrease in the demand, A fall in the demand will decrease the economic activity and cause a output and income loss. Overall, when people save more that is bad for the economy as the demand falls in the market and income decrease.

In real life,Suppose a firm is trying to buy a new building and for that they are saving out of profit, first they were saving 50% of the profit and now they are saving 75%, this will lead to less salary and employees will be laid off. this will decrease the income of the people and that will decrease overall profit of the firm as people are demanding less in the market.