CA Foundation P4 · Chapter 5 · Question 9 of 15
The 'paradox of thrift' suggests that:
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: D) An attempt by all households to save more may leave total saving unchanged or lower, because income falls
Explanation
In the Keynesian model, a rise in the desire to save reduces consumption and aggregate demand. Through the multiplier, income falls, and with lower income realised saving may not rise (and can fall if investment depends on income). What is virtuous for an individual may be harmful for the economy as a whole.
More Determination of National Income MCQs
- Q11In a simple Keynesian model with lump-sum taxes, if government expenditure and taxes are both increased by Rs. 100 crore, national income…
- Q12In an open economy, MPC = 0.8 and the marginal propensity to import = 0.05 (with no taxes). The open-economy multiplier is:
- Q13In the two-sector Keynesian model, equilibrium income is attained where:
- Q14An inflationary gap exists when:
- Q15Disposable personal income is equal to: