Question

In the paradox of thrift:

A)firms that are pessimistic about the future lay off the most saving-conscientious workers.
B)when families and business are feeling pessimistic about the future, they spend more.
C)increased saving by individuals increases their chances of becoming unemployed.
D)risky behavior during economic tough times has large negative consequences for society.

Answer 1

The correct answer is the letter d. Increasing individual savings increases the chances of becoming unemployed.

Step-by-step explanation:

The paradox of parsimony concerns the contradiction of increased savings by individuals in a given economy and, as a consequence, this economy has declined savings in the future due to falling consumption. According to the parsimony paradox, excess savings may result in lower savings, ie, increased individual savings may result in a lower level of production, leading to a lower level of income and thus a lower level of savings. Moreover, as production would be lower, there would be less employment. Having the possibility, therefore, of the individual to become unemployed.