Econ102 transportation logistics management

Please respond to both students separately!! with  a minimum of 100 words each 

Intial Post

An interesting paradox called the “Paradox of Thrift” arises when households become concern about their future and attempt to increase their saving.   As a consequence of such action the overall economy will suffer. Explain.  Do you agree with this assessment? 

Student Response

Constance 

As children we are often times given piggy banks in order to save our dollars from our grandparents or to save up our allowance. During this time as children we are not concerned if our piggy banks hurt the economy because we are not doing the buying our parents are. However, in the paradox of thrift according to Keynes theory he believed that during the time of a recession that a household should actually spend more because that is what causes the economy to grow. Hit theory was that if households cut back their spending during a recession than business would not have the ability to bounce back quickly enough. A decrease in aggregated spending means that business have no demand to produce more but in fact produce less. 

One of the examples of how the paradox of thrift can affect the economy is this statistic according to Katarina Verman, “I want a new computer, so I start saving an extra $100 each month that I would otherwise spend going out to eat. By choosing not to spend that $100, I deny the wait staff at my favorite restaurants some work hours and tips (i.e., some portion of their income). As a result, these workers also have to reduce their consumption because they are earning less.” So, if everyone started to do this it would almost cause a snowball effect and therefore effect the economy especially during the time of a recession.  

In my opinion I do believe that during a recession that the paradox of thrift definitely has some data that supports this theory. I don’t believe that saving money is a bad thing however during a recession I can see why it could negatively affect the economy. 

Latosha

An interesting paradox called the “Paradox of Thrift” arises when households become concern about their future and attempt to increase their saving.   As a consequence of such action the overall economy will suffer. Explain.  Do you agree with this assessment?  

The Paradox of Thrift arises when households start saving for a rainy day when there is concern that the economy is not looking so great. As a result, the overall economy will suffer as more people are saving instead of spending which decreases demand, so the supply of goods is lowered and therefore less people are needed to work the jobs. At this point unemployment starts to rise so people start to fear job cuts and save more, which results in less spending, so the cycle continues, on. “Saving for a rainy day can actually bring on more rain. That’s the paradox of thrift: Saving is good, unless we all save too much.” In a way I agree with this assessment, if the economy is looking a little rough I can understand why people would start to save more than they spend in anticipation of when things go south. After all, it is much easier to get by when things are bad if you have some money set aside.  

Consumers are pulling back because they’ve realized that they’re too far in debt. The economy is shrinking in large part because consumers are pulling back. And the result, almost surely, is to leave household balance sheets worse than ever. But almost without question the ratio of household debt to personal income has been rising, not falling, as consumers try to save more.