Which of the Following Illustrates the Paradox of Thrift

question 92

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

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Definitions:

Limited Partnership Fund

A type of investment fund composed of a general partner, who manages the fund and is responsible for its debts, and limited partners, who provide capital and have limited liability.

Venture Capital

A type of private equity financing that is provided by venture capital firms to startups and emerging companies with high growth potential.

Investment Vehicle

Financial instruments and products used by investors to gain positive returns on their money.

Trading Equity

The process of exchanging ownership stakes in a company, often for capital investment or strategic partnership benefits.