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If all people in the economy increase the proportion of income they save, then total savings in the economy will not increase; it will either decline or remain unchanged. This phenomenon is known as_____.

Solution

✅ Correct Option: 2

This is the Paradox of Thrift. If everyone raises the proportion of income saved, aggregate demand falls, income contracts through the multiplier, and total savings in the economy end up unchanged or even lower.

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