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Pardox of Thift

  • Date Submitted: 03/21/2015 09:45 AM
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Written Essay # 2
Due: March 1, 2015
Principles of Economics

The paradox of thrift can not only help people save money, but can also affect them in a negative way.   When someone wants to save money for their future, they must also look at how it can affect them, whether it is with their job or how much they decide to save for their future.  

Spend Less, become Poorer
The theory of the paradox thrift is that people will save money for their future, but in the end will become poorer due to the possible loss of loss of their job potentially.   What this then means is they will spend less money, which then causes a decrease in the economy. When people spend less money, the theory defines this as an impact to the economy as a whole.   . “Now let's assume that everybody decides they need to save more for retirement. They start saving $750 of their $1,000 and spending only $250. Suddenly, there is a drop in the demand for goods and services. Businesses can't make profit, and so they lay off workers, which raises unemployment and lowers the tax revenue to the government. The unemployed people, who now are out their income, stop spending altogether, which worsens the problem even more. The whole thing continues on a downward spiral” (Investing Answers 2015).   It is important to understand this because if everyone saves, it does not create enough revenue to keep up the cycle of money and money for the governments.   I think this concept is something that needs to be seriously considered.   It makes sense to me, if everyone is not spending money, how it can truly affect businesses in the area.   This reminds me how the government gave out stimulus checks, to boost the economy, they did this to get people to start spending money, to create more revenue in the economy.   To me this could be a huge factor for the growth of our economy.   If people are not spending money, then other products slow down and people do risk getting laid off or losing jobs because...


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