When one person saves more, that person's wealth is increased, meaning that he or she can consume more in the future. But when everyone saves more, everyone's income falls, meaning that everyone must consume less today. Explain this seeming contradiction.

Individual savings has a positive impact on an individual's wealth, as it allows for future investments and consumption. When a person saves more, they are essentially storing money for future use, which can then be utilized for various purposes such as emergencies, major purchases, or investments. These savings can also be invested to generate income through interests, dividends, and capital gains.

When a large number of individuals in an economy collectively begin to save more, this may lead to a decrease in consumer spending. Consumer spending drives demand for goods and services, and when spending decreases, the overall demand in the economy starts to fall. This reduced demand can lead businesses to cut back on production, causing layoffs and reduced income for both businesses and households. Consequently, overall income across the economy falls, leading to reduced consumption possibilities.

Although individual savings may have a positive impact on a single person's wealth, when considering the effects of widespread increased savings on the whole economy, the impact can be negative. The key difference lies in the relationship between savings and spending at an individual versus an aggregate level. Individually, a person can save and grow their wealth without significantly impacting the economic demand for goods and services. However, on a widespread scale, when most of the population saves simultaneously, the drop in consumer spending hurts businesses, leading to reduced income and lower economic growth as a whole. In conclusion, individual savings can indeed increase a person's wealth and enable greater future consumption possibilities. But when the entire population decides to save more, it leads to decreased income and consumption at the collective level. The apparent contradiction can be reconciled by understanding the different impacts of savings when viewed from an individual as compared to an aggregate perspective.