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BALANCED-BUDGET AMENDMENT: A proposed amendment to the U.S. Constitution that would constrain total government spending to be less than or equal to total tax collections. Such an amendment would effectively eliminate the federal deficit, which results when the spending exceeds taxes. The logic behind such an amendment is to prevent discretionary use of fiscal policy, which is often blamed for political business cycles and the resulting problems of inflation and unemployment. It is also touted as a way to limit the size of the Federal government.

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Lesson 19: Money Creation | Unit 4: The Multiplier Page: 16 of 23

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A multiplier captures the magnified relationship between an activity and the triggering event.The money creation process:
  • The activity is the deposit creation.
  • The trigger event is extra bank reserves.
The multiplier:
  • In our example, the banking system creates $1,000 of deposits from $100 worth of reserves.
  • The deposit multiplier equals 10: Each $1 of extra reserves triggers 10 times the amount in deposits.
D = mR

D = Number of deposits created.
R = Number of reserves added to the banking system.
m = The value of the multiplier (10 in the example).


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INVESTMENT BUSINESS CYCLES

The notion that business cycles are caused by changes in business sector investment expenditures triggered by the natural ebb and flow of market conditions. This investment explanation of business-cycle instability rests on the proposition that the seeds of each subsequent business-cycle phase are planted during the current phase. An expansion creates the conditions that cause a contraction and a contraction creates the conditions that cause an expansion. This explanation suggests a critical role for government intervention and stabilization policies to correct the business-cycle problems of inflation and unemployment.

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Today, you are likely to spend a great deal of time at a crowded estate auction wanting to buy either a flower arrangement with daisies and carnations for your uncle or a coffee cup commemorating next Thursday. Be on the lookout for high interest rates.
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The first "Black Friday" on record, a friday marked by a major financial catastrophe, occurred on September 24, 1869 -- A FRIDAY -- when an attempted cornering of the gold market induced a financial crises and economy-wide depression.
"Now is the only time there is. Make your now wow, your minutes miracles, and your days pay. Your life will have been magnificently lived and invested, and when you die you will have made a difference."

-- Mark Victor Hansen

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