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The Krugman Hypothesis
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What is the central tenet of the Krugman Hypothesis?
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A
Increasing inequality leads to slower economic growth.
💡 Explanation:
The Krugman Hypothesis posits that as inequality increases, the wealthy tend to save a larger proportion of their income, while the poor spend a larger proportion of their income. This leads to a decrease in aggregate demand and, consequently, slower economic growth.