Explain The Paradox Of Thrift

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Macroeconomics Problem Set Critical thinking: Paradoxes in Macroeconomics. The Macro/Micro difference We are, in short, temporarily on the other side of the looking glass. The combination of the liquidity trap –even a zero interest rate isn’t low enough to restore full employment –and the overhang of excessive debt has landed us in a world of paradoxes, a world in which virtue is vice and prudence is folly, and most of the things serious people demand that we do actually make our situation worse”. Introduction • I will briefly explain about what I am going to do in the essay. o Response to the title o Give some history about the three paradoxes o Give a brief assessment of what is happening in the economy. Point 1 • Paradox of Thrift o Paradox of thrift: is a theory, which states if everyone tries to save money at the same time, which you make think will create future wealth. However because everyone is doing this, which means there…show more content…
o Because microeconomics looks at individual transactions and small impacting originations making use of scarce resources. So saving in microeconomics may be good for the individual, however as macroeconomics looks at the bigger picture and looking at how the whole economy useless scarce resources. So in fact one thing may be good for someone, however it may not be good for someone else. • However there are also occasions when savings can benefit the economy. o For instance if people save in the economy, it could lead to future wealth. Because if people place more money into the bank. The banks will be able to lend money to businesses, who can invest money on machinery, which will then create the money multiplier. • Part

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