Macro 102 Week 4 DQ & DQR

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/1/23, 2:50 PM W5: Paradox of Thrift – ECON102 D005 Fall 2022

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W5: Paradox of Thrift

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Week 5 Discussion Post 4

An interesting paradox called the “Paradox of Thrift” arises when households
become concern about their future and attempt to increase their saving. As a
consequence of such action the overall economy will suffer. Explain. Do you
agree with this assessment?

Your initial discussion posts must be submitted by midnight, Day 3 and then your
responses to 2 of your classmates’ posts by have to be submitted by midnight,
Day 7.

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Week 5 Discussion post 4
Jonathan Malcolm posted Jan 1, 2023 3:07 PM Subscribe

Hello class,

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The paradox of thrift which is people gaining concern for the future so they look to save all

the money they can. This will definitely have a negative impact on the overall economy. If

you think about all the money you would be saving, that money is someone else’s lost

income. Small businesses would be suffering to stay afloat, and yes while you would be

keeping more money for yourself it would hurt the economy. I understand you can’t spend

everything you make, while that’s not good for yourself but not spending any of could even

go as far as causing these smaller businesses to go under and create rises in the

unemployment rates.

“John Maynard Keynes, who published his influential work, The General Theory of Employ –

ment, Interest, and Money, in 1936, noted saving can ultimately be detrimental to the

economy because of the paradox of thrift. This theory argues that if everyone individually

cuts spending to increase saving, aggregate saving will eventually fall because one person’s

spending is someone else’s income.”

This can also cause such a snowball effect because if I’m saving all my money, causing

others to lose out on income. They will in turn have to save their money to make up for the

lost income of me saving my money and so on and so on. Causing a much bigger effect on

the economy as a whole.

Vermann, E. Katarina. “‘Wait, Is Saving Good or Bad? the Paradox of Thrift.’” Economic
Research – Federal Reserve Bank of St. Louis, May 2012,

https://research.stlouisfed.org/publications/page1-econ/2012/05/01/wait-is-saving-good-

or-bad-the-paradox-of-thrift/.

-Jonathan

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WK5 DB
Bernard Vinson posted Jan 1, 2023 10:57 AM Subscribe

Hello Class,

During the pandemic, people saved more money and had less credit card debt. Nearly $4

trillion was saved. (Frank, 2021) Saving money gives people a sense of comfort in knowing

they have money stashed away. With this comes the Paradox of thrift. This is when saving

https://research.stlouisfed.org/publications/page1-econ/2012/05/01/wait-is-saving-good-or-bad-the-paradox-of-thrift/

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more during an economic recession, leading to a fall in aggregate demand and economic

growth. Such a situation harms everyone as investments give lower returns than average.

(What Is Paradox of Thrift? Definition of Paradox of Thrift, Paradox of Thrift Meaning,

2022) Although a person decides to save or cut back on expenses from a particular

merchant, the money could go toward a different seller. For example, if I cut back on eating

out to save money for a vacation, the money will be saved but put towards other means in

return. The economy will not suffer from the Paradox of thrift because it allows people to

save money and spend it on wanted things with more money to do so, which in return will

grow the economy.

Reference:

Frank, R. (2021, August 4). Most of America’s extra savings during the pandemic are going
to the wealthy. CNBC. https://www.cnbc.com/2021/08/03/most-of-americas-extra-

pandemic-savings-are-going-to-the-wealthy-.html

What is Paradox Of Thrift? Definition of Paradox Of Thrift, Paradox Of Thrift Meaning.

(2022, December 27). The Economic Times.

https://economictimes.indiatimes.com/definition/paradox-of-thrift

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https://www.cnbc.com/2021/08/03/most-of-americas-extra-pandemic-savings-are-going-to-the-wealthy-.html

https://economictimes.indiatimes.com/definition/paradox-of-thrift