If all the people in the economy increase the proportion of income they save, the total value of savings in the economy will not increase – it will either decline or remain unchanged. This situation is known as...................

Option 1 -> Deficient Saving is not a recognized economic term for this phenomenon.

Option 2 -> Paradox of Thrift describes the situation where increased individual saving leads to decreased or unchanged total savings in the economy.

Option 3 -> Excess Demand refers to a situation where demand exceeds supply, causing inflationary pressure, not related to savings behavior.

Option 4 -> Excess Investment refers to investment exceeding optimal levels, not the saving paradox described.

Hence, Paradox of Thrift -> This Keynesian economic concept explains that when everyone tries to save more simultaneously, consumption falls, leading to reduced aggregate demand. This causes businesses to cut production and employment, resulting in lower overall income in the economy. Consequently, despite individuals attempting to save more, total savings in the economy either remain unchanged or actually decline because of reduced national income. The paradox highlights that what is rational for an individual (saving more) can be harmful for the economy as a whole during times of weak demand -> correct