Which of the following is (are) true regarding the paradox of thrift? I. People

Question

Which of the following is (are) true regarding the paradox of thrift?

I. People intend to save less but their actions actually lead to an increase in savings.
II. For the paradox of thrift to occur, investment must be positively related to income.
III. The increased savings of households leads to more consumption, income, and output, increasing investment and aggregate savings.

Which of the following curves is vertical?
1. short-run aggregate supply
2. aggregate expenditures line
3. long-run aggregate supply
4. aggregate demand

Explanation / Answer

Ans)

I. People intend to save less but their actions actually lead to an increase in savings.

For individual saving is useful but not necessarily for the aggregates.

3. long-run aggregate supply

This is because changes in aggregate demand only cause temporary changes in the level of output.

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