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Paradoxes Essay

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Below is an essay on "Paradoxes" from Anti Essays, your source for research papers, essays, and term paper examples.

The essay below is going to look at three main paradoxes, which is the macroeconomic concept of thrift, krugman’s idea of the paradoxes of deleveraging and flexibility and also why these three paradoxes do not occur in microeconomics. In this essay we will also look at why these paradoxes occur. Paradoxes according to Cook, R (1972) refers to arguments that emerge from apparently true premises, through uncontroversial reasoning to a false or even contradictory conclusion. In addition, paradoxes may not always apply to every situation, since they turn out to be controversies but can be used to explain why certain decisions, are made by people in economic situations. Macroeconomics is a branch of economics that examines the overall behaviour of the economy whilst microeconomics studies the behaviours of individuals and firms (Krugman, P and Wells, R. 2013). Liquidity trap according to Krugman (2010) occurs when short-term rates approaching zero results in conventional open market operation and purchases of short-term government debt by the central bank losing traction.

Paradox of the thrift in macroeconomic concept refers to the observation that savings made by individuals in their consumption lead to a drop in overall demand which in turn leads to increase spending by a business or government. Dictionary of Accounting and Finance (2010). This paradox lies in macroeconomics because it deals with the causes and effects of savings on the whole economy not just individuals and firms. An increased saving in the economy does not help grow the economy but rather depresses the economy especially in the times of recession. These increased savings leads to a fall in production and employment. A decrease in employment leads to a further decrease in spending. The multiplier by Keynesians, results an increase in intended savings into a decrease in actual savings. Thies, C (1996). Incomes continue to reduce because people are spending less and saving more which causes...

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