Which of the Following Illustrates the Paradox of Thrift

question 50

Multiple Choice

Which of the following illustrates the paradox of thrift?

• A) Consumer uncertainty causes people to save less; consumption rises; equilibrium income and production falls; savings decrease because income is lower.
• B) Consumer uncertainty causes people to save more; consumption falls; equilibrium income and production falls; savings decreases because income is lower.
• C) The government encourages saving by raising interest rates; higher interest rates reduce investment spending, which lowers equilibrium income and causes production to fall; savings decreases because income is lower.
• D) As businesses save more, interest rates fall, thus reducing household savings.

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Definitions:

Finished Goods Inventory

Goods that have been fully manufactured but remain unsold or undistributed to purchasers.

Cost Of Goods Sold

The immediate expenses linked to the manufacturing of products a company sells.

Product Costs

The costs directly attributable to the manufacturing of a product, including direct labor, direct materials, and manufacturing overhead.

Period Costs

Expenses that are not tied directly to the production process and are instead recognized as expenses in the period in which they are incurred.