Political Economy Keynesian Economics Questions
The paradox of thrift in Keynesian Economics refers to the idea that individual attempts to save more during an economic downturn can actually worsen the overall economic situation. According to Keynesian theory, when individuals and households increase their savings and reduce their spending, it leads to a decrease in aggregate demand. This decrease in demand can result in a decrease in production, leading to lower incomes and higher unemployment rates. Therefore, while saving is generally considered a prudent and responsible behavior, during times of economic downturn, excessive saving can have negative consequences for the overall economy.