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Economics: An A-Z Guide by Matthew Bishop

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Paradox of thrift

One of the most interesting insights of KEYNES, the paradox states that if everyone saves more MONEY during times of RECESSION, aggregate DEMAND will fall and will in turn lower total SAVINGS in the POPULATION because of the decrease in CONSUMPTION and GROWTH. This is one example, though there are others, of individuals, by doing what is rational at the personal level, producing an outcome in aggregate which is worse for everyone.

Pareto efficiency

A situation in which nobody can be made better off without making somebody else worse off is “Pareto optimal”. Named after Vilfredo Pareto (1843–1923), an Italian economist. If an economy’s resources are being used inefficiently, it ought to be possible to make somebody ...

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