underconsumption theory
Quick Summary
Underconsumption is an economic concept where the consumption of goods and services falls below the level of production. This occurs due to insufficient purchasing power among consumers, leading to a decline in demand.1
This situation can trigger a recession, characterized by a decrease in overall production and employment. As incomes and household spending fall, businesses may reduce their inventory buildup, further impacting production levels. The severity of a recession can depend on factors like credit availability, speculation, and the effectiveness of monetary and fiscal policies.2
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