Explain ‘Paradox of Thrift’.
The growth of a country is dependent upon its level of investment and level of investment depends upon the level of savings that is thrift or savings lead to increased income in the economy.
According to Prof. Keynes, the increase in savings in the economy may not benefit the economy as a whole because if all people will increase the proportion of income they save, the total value of savings will not increase. It will either decline or remain unchanged.
The paradox of thrift states that as people become thriftier, they end up saving less or same as before.
With help of following chart we can understand it easily