Answer-Which of the following scenarios best represents the ‘Paradox of Thrift’ as explained b...

Explanation The Paradox of Thrift suggests that while individual savings are beneficial, if everyone increases savings, aggregate demand falls , leading to reduced economic output and growth. Keynes argued that excessive saving during recessions worsens economic downturns.

Question

Which of the following scenarios best represents the ‘Paradox of Thrift’ as explained by Keynesian economics?

A A rise in household savings leads to a fall in aggregate demand, reducing overall economic growth.

B An increase in the money supply leads to a proportional increase in nominal GDP.

C Higher government borrowing results in increased private sector investments due to crowding-in effects.

D A reduction in central bank interest rates causes inflation to remain at zero due to consumer pessimism.

E None of the above.

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Which of the following scenarios best represents the ‘Paradox of Thrift’ as explained by Keynesian economics?

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