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RISK LOVING: A person who values a certain income less than an equal amount of income that involves risk or uncertainty. Suppose that you have two options--(A) a guaranteed $1,000 or (b) a 50-50 chance of getting either $500 or $1,500. If you chose option B, then you're risk loving. While both options give you the same "expected" values, you get more satisfaction from the risky option than the guaranteed one. In fact, risk loving people are willing to pay for the opportunity to experience a risky situation.

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Lesson 12: Business Cycles | Unit 4: Causes Page: 18 of 26

Topic: Investment <=PAGE BACK | PAGE NEXT=>

Instability of business investment is one explanation of business cycles.
  • During the Great Depression, production declined by 40% and investment declined by over 90%. Did this big drop in investment cause the overall drop in production?
  • Investment can trigger changes in production through the circular flow. A decrease in investment, causes a decrease in production, which reduces household income, which reduces consumption, which causes further reductions in production, income, and consumption.
  • Small changes in investment can cause magnified changes in aggregate production. A $10 billion decrease in investment might cause a $50 billion decrease in GDP.

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TAX PROPORTIONALITY

The proportion of income paid in taxes at different levels of income. In some cases the proportion of income paid in taxes increases with income in other cases it decreases. And in still other cases, it remains the same. Tax proportionality comes in three alternatives -- proportional tax (different incomes pay the same proportion in tax), progressive tax (higher incomes pay a higher proportion in tax), and regressive (lower incomes pay a higher proportion in tax).

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Today, you are likely to spend a great deal of time at a going out of business sale hoping to buy either a travel case for you toothbrush or a looseleaf notebook binder. Be on the lookout for mail order catalogs with hidden messages.
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A U.S. dime has 118 groves around its edge, one fewer than a U.S. quarter.
"The majority of men meet with failure because of their lack of persistence in creating new plans to take the place of those that fail. "

-- Napoleon Hill, author

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