Explain ‘Paradox of Thrift’.

● The paradox of thrift is a situation in which the people in an economy tend to save more which leads to a fall in the savings of the economy as a whole.

● When everyone his/her saving proportion (MPS), then the aggregate demand will fall as the consumption decreases.

● This will lead to a decrease in employment and income levels.

● Finally, the total savings will also fall.