Suppose a report on CNN says that there is an impending recession coming in the United States. As a result, Bert's family, as well as many other like minded families and individuals, reduce their spending and instead fill up their piggy banks for a potential rainy day.

As a result of this behavior:

a) Nothing in the economy changes as a result of people choosing to save up some money.

b) The economy is actually harmed as there is a sharp decease in consumer spending.

c) The economy is stimulated as individuals begin to save up money and therefore have more money to spend on goods.

In macroeconomics, this result is known as:

a) self-regulation

b) a business cycle

c) normal behavior

d) piggy bank fattening

e) the paradox of thrift

Question

Business

Deborah Reed

12 December, 15:47

Suppose a report on CNN says that there is an impending recession coming in the United States. As a result, Bert's family, as well as many other like minded families and individuals, reduce their spending and instead fill up their piggy banks for a potential rainy day.

As a result of this behavior:

a) Nothing in the economy changes as a result of people choosing to save up some money.

b) The economy is actually harmed as there is a sharp decease in consumer spending.

c) The economy is stimulated as individuals begin to save up money and therefore have more money to spend on goods.

In macroeconomics, this result is known as:

a) self-regulation

b) a business cycle

c) normal behavior

d) piggy bank fattening

e) the paradox of thrift

+1

Answers (1)

Know the Answer?

Joshua Sheppard · Answer 1

1 - B (The economy is harmed as there is a sharp decrease in consumer spending.

2 - The paradox of thrift.

Explanation:

When people go for saving from consuming during recession, it affects the overall economy. Although this is surely an individual choice but it does, because less consumer spending means higher interest rates and low demands harms the economic growth. The paradox of shift, a term coined by John Maynard Keynes an renowned economist which refers to the behavior of people when they suddenly starts saving during a recession it happens when one worries too much. And in the end it hits the demand harder.