Lernkarten
Explain the term paradox of thrift.
when families and businesses are worried about the possibility of economic hard times, they prepare by cutting their spending. This reduction in spending depresses the economy as consumers spend less and business react by laying off workers. As a result, families and businesses may end up worse off than if they hadn’t tried to act responsibly by cutting their spending.
The paradox of thrift is an attempt by households to increase their savings can cause a recession. But a higher level of savings plays a crucial role in encouraging long-run economic growth.
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