Who coined the concept of "Paradox of Thrift" ?
- A.Adam Smith
- B.Alfred Marshall
- C.John Maynard Keynes
- D.Paul A. Samuelson
Correct answer
Explanation
The correct answer is C, John Maynard Keynes. Keynes made the paradox of thrift a central idea of his economics in the 1930s.
The paradox says that what is wise for one household can hurt the whole economy. If everyone tries to save more at the same time, total spending falls, so firms sell less, cut output and lay off workers. Incomes then fall, and in the end total saving may not rise at all, and can even fall. Keynes used this to argue that during a depression the problem is too little demand, and that government spending can fill the gap. The idea is linked with his book The General Theory of Employment, Interest and Money (1936).
A is wrong: Adam Smith, author of The Wealth of Nations, praised saving as the source of capital and growth.
B is wrong: Alfred Marshall is known for demand and supply analysis, elasticity and consumer surplus.
D is wrong: Paul Samuelson popularised the idea in his textbook but did not coin it.
Exam tip: Paradox of thrift, effective demand and the multiplier all point to Keynes and his General Theory (1936).
Practice Questions
View allIn India, which of the following can be considered as public investment in agriculture?
1. Fixing Minimum Support Price for agricultural produce of all crops
2. Computerization of Primary Agricultural Credit Societies
3. Social Capital development
4. Free electricity supply to farmers
5. Waiver of agricultural loans by the banking system
6. Setting up of cold storage facilities by the governments
Select the correct answer using the code given below :
- A.1, 2 and 5 only
- B.1, 3, 4 and 5 only
- C.2, 3 and 6 only
- D.1, 2, 3, 4, 5 and 6
Show answer
Public investment means government spending that creates lasting assets or capacity, while support prices, free power and loan waivers are subsidies or transfers.
Read the full explanation →Consider the following activities :
I. Production of crude oil
II. Refining, storage and distribution of petroleum
III. Marketing and sale of petroleum products
IV. Production of natural gas
How many of the above activities are regulated by the Petroleum and Natural Gas Regulatory Board in our country?
- A.Only one
- B.Only two
- C.Only three
- D.All the four
Show answer
The Petroleum and Natural Gas Regulatory Board covers the downstream chain, refining to sale, but not the production of crude oil and natural gas.
Read the full explanation →Which one of the following equals Personal Disposable Income ?
- A.Personal Income - Direct taxes paid by households and miscellaneous fees, fines, etc.
- B.Private Income - Saving of Private Corporate Sectors - Corporation Tax
- C.Private Income - Taxes
- D.Total expenditure of Households - Income Tax - Gifts received
Show answer
In national income accounting the steps run from private income to personal income to personal disposable income. Private income is the factor income of the private sector plus transfers.
Read the full explanation →With reference to India, consider the following pairs:
Organization : Union Ministry
I. The National Automotive Board : Ministry of Commerce and Industry
II. The Coir Board : Ministry of Heavy Industries
III. The National Centre for Trade Information : Ministry of Micro, Small and Medium Enterprises
How many of the above pairs are correctly matched?
- A.Only one
- B.Only two
- C.All the three
- D.None
Show answer
Each organisation is paired with the wrong ministry. The National Automotive Board works under the Ministry of Heavy Industries; it supports the automobile sector with testing and certification work and helps run schemes for the industry.
Read the full explanation →If the RBI decides to adopt an expansionist monetary policy, which of the following would it not do?
1. Cut and optimize the Statutory Liquidity Ratio
2. Increase the Marginal Standing Facility Rate
3. Cut the Bank Rate and Repo Rate
Select the correct answer using the code given below:
- A.1 and 2 only
- B.2 only
- C.1 and 3 only
- D.1, 2 and 3
Show answer
An expansionist policy aims to make money cheaper and more plentiful, so the RBI would not raise the Marginal Standing Facility rate, which makes borrowing dearer.
Read the full explanation →