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Contractionary fiscal policies result in a decrease

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Contractionary fiscal policies result in a decrease in inflation rates and shift the aggregate demand curve to the left Say’s Law – the foundation of Classical Economics, states that “supply will create its own demand” Prices adjust upward or downward to compensate for increases or decreases in demand for a product According to this theory, excess production is impossible--- even if inventory does not sell at one price, prices adjust downward and the inventory will sell The Great Depression of the 1930s – proved that the Classical Economic Theories were not always true and paved the way for the government to be more responsible for the nations fiscal policy and well being Cyclical Deficit – is a result of constant government budget short-falls in light of a recession Result of low tax revenues during a recession
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Shoe-Leather Costs – costs that come from trying to economize money as a result of inflation Examples: excessive trips to the bank, computer systems that monitor money usage, and increased bank costs due to increased transactions Wealth – the value of assets minus liabilities Value of an economic unit is also referred to as Net Worth Asset – anything of value that is owned Can be either financial or real Examples: cash, bonds, stocks, bank accounts, houses Liability – debt or something owed Include loans, bills not paid, money owed Balance Sheet – a tool that analyzes a firms assets and liabilities as of a certain date Vital tools that determine net worth of an individual economic unit by comparing assets and liabilities side by side Capital Gain – increase in value of an asset, represent increase in wealth Capital Loss – decrease in value of an asset, indicates decrease in wealth Stock and Flow – inflows and outflows of stocks, bank accounts, inventory of a store and housing value Inflows – anything that adds to the stock Outflows – anything that subtracts from the stock Life-Cycle Savings – individual savings for life-stage needs including: retirement, college, etc. Precautionary Savings – savings in order to protect themselves during times of emergency, to cover unexpected expenses Bequest Savings – savings in order to leave an inheritance, usually for people to make a significant amount of money Real Interest – is interest paid to the lender adjusted for inflation Nominal Interest – interest paid to the lender Transfer Payments – government payments to the public that result in no return of goods or services Example unemployment and welfare payments Government Surplus – when the amount of taxes the government collects exceeds expenditures Used to pay down public dept Government Deficit – when the amount of taxes the government collects are exceeded by the governments spending National Saving – the saving of a whole nation Includes all sectors of the economy—personal saving, business saving, and governmental saving
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