answer 2 forums 150 words each Paradox of Thrift

#1 Justin: requires 150 response:  

This week for our post, we are tasked with discussing the “Paradox of Thrift” and if we agree with it or not. According to (Businessdictionary.com) the theory of “Paradox of Thrift” mainly applies to Keynesian economics. The “Paradox of Thrift” theory implies that in times of recessions if more people choose to save money instead of spending it, then the result could lead to less consumption. In turn, individuals could potentially lose their jobs leaving them with no money to save. Basically what they set out do by saving money will result in the opposite. To worsen the matter there would be a decrease of investments from companies and potential output, which would result in lower income.

For me personally, I can see how this theory could prove to be true. I do, however, believe there is nothing to worry about. Anytime the economy slows down people tend to save more money and pay off things such as bills that had previously been piling up because they are uncertain about the future. While some industries will struggle if massive amounts of people do this most are still required to purchase the necessary products to live. On top of all this, they are building up a security blanket, which would allow them to make larger purchases once they feel more comfortable with the economic situation. Couple these things with the fact that many people use this time to pay down debt means that banks now have more money that they can loan that can further stimulate spending. In order for the paradox of thrift to become true, massive amounts of people would have to engage in this level of savings to have any real effect.

References

paradox of thrift. BusinessDictionary.com. Retrieved October 30, 2017, from BusinessDictionary.com website: http://www.businessdictionary.com/definition/paradox-of-thrift.html

#2 Brent requires 150 response:  

The Paradox of Thrift is a paradox that occurs when consumers are concerned about a potential recession in an economies future and save money to prepare for this hardship. The paradox is that by increasing their savings they are reducing consumption which will in turn negatively effect the economy. I agree that it is possible for fear or rumors of a drop in the market could actually cause a decrease. A possibility would be if consumers were concerned about future layoffs they would delay big ticket purchases and try to minimize expenses to increase savings. This would be done to help "weather the storm" but the decrease in purchases across the economy would actually bring about a drop in the economy. Another idea that comes to mind would be an individual adjusting part of their 401K portfolio from stocks to bonds and securities to minimize the losses of an expected drop in the stock market. If this happened on a large enough scale it would have an effect on stock prices and cause a drop in the market.

Despite these possibilities I think it is very important to save money for two reasons. Having money on hand reduces the shock felt by consumers during a recession and consumers are not as dependent on transfer payments to get by. Also money that is saved in banks by consumers is then able to be borrowed by others for investments such as an individual wanting to start a business. This helps create new jobs and grow the economy. In the end I would argue that while thrift reduces consumption spending it also plays an important part of the economy .

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