Paradox of Thrift is an individual household, business, or government may attempt to save money by reducing their current expenditures. However, those attempts to save, once amalgamated at the level of the overall economy, may reduce aggregate spending levels and hence output and employment, thus undermining overall growth or even causing a recession. If this occurs, the revenue of households, businesses, and governments will decline, and overall saving may end up no higher (and potentially be even lower) than before the effort to boost savings. Because of this paradox, it is not usually possible to improve economic performance by boosting saving.
Definition