If consumers increase saving during a recession, what will this do and why?
What will be an ideal response?
An increase in saving during a recession will make the recession worse. If consumers increase their saving, the result is less money to spend on goods and services. This means a decrease in aggregate demand. As consumers demand fewer goods and services, more layoffs will occur, household incomes will decrease, and the recessionary gap will become greater (= multiplier effect).
You might also like to view...
When production moves from the efficient quantity to a point of overproduction,
A) consumer surplus definitely increases. B) the sum of producer surplus and consumer surplus increases. C) there is a deadweight loss. D) consumers definitely lose and producers definitely gain. E) consumers definitely gain and producers definitely lose.
Which of the following is NOT a function of money?
A) medium of stored value B) standard of deferred payment C) unit of accounting D) store of value
The fundamental source of monopoly power is
a. many buyers and sellers. b. low fixed costs. c. rising average total costs. d. barriers to entry.
The economic inefficiencies of monopolistic competition may be offset by the fact that:
A. advertising expenditures shift the average cost curve upward. B. available capacity is fully utilized. C. resources are optimally allocated to the production of the product. D. consumers have increased product variety.