Why is there a paradox of saving?
Macroeconomics has an important concept called GDP. This is the best indicator to measure a country's economic level and wealth.
GDP, gross domestic product, refers to the total value of all products and services produced by the country in a certain period of time.
How to calculate this total value, all the values will be reflected in the business. The calculation of GDP is usually to add these four businesses together, consumption, government procurement, net export and investment.
Understanding the composition of GDP will help us understand why Keynes encouraged consumption. How can you make money without consuming others? Conversely, how can you make money without spending money?
Moreover, consumption also has a multiplier effect. Your consumption will become someone else's income. If others use this money for consumption or investment, they will generate new consumption, and the GDP will become bigger and bigger. This is the multiplier effect.
Second, we should treat the macro-economy dialectically. The above only represents one side's point of view. On the other hand, residents should save money and deposit it in the bank, and then the bank will lend the money to enterprises for investment, which can also increase GDP and employment. And think that simply encouraging consumption is useless. To develop new and good products, improve production capacity instead of consumption upgrading, and to produce good products, you need to invest and have a lot of savings. From this perspective, savings will not only increase GDP.