Question

In what circumstances could Paradox of Thrift be good for an economy?

Answer 1

Paradox of thrift shows that saving is a good thing but too much of it can harm the economy some level of spending is necessary to maintain a healthy economy ensure that people have jobs and continue providing tax revenue to the government. but paradox of thrift reminders that savings is open investing in companies that use the money to build factories expand operations and hire more employees accordingly saving doesn't necessarily held the economy.this theory also argued that consumption or spending drives economic growth does even though it makes sense for individuals and households to reduce consumption during tough time this is the wrong prescription for the larger economy. so we could say that paradox of thrift is an economic theory that personal savings are a net drag on the economy during a recession. Paradox of thrift relies on the assumption that price do not clear or that producers fails to adjust to changing conditions contrary to the expectations of classical microeconomics.