Keynesian Model: Effects of Increased Savings on the Economy

Effects of Increased Savings on the Economy

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Question

The Keynesian model indicates that when individuals plan to save more (and spend less), the result may be a(n)

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Explanations

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A. B. C. D.

B

An increase in savings implies a decrease in disposable income and thus a decline in consumption. As a result aggregate demand will fall and output will follow.

Output is equivalent to income and thus the equilibrium level of income also declines.