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24 Terms
1
Savings
Portion of income not spent on current expenditures but set aside for future use.
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2
Investment
Using savings to purchase assets with the expectation of generating returns over time.
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3
Personal Savings
Money individuals set aside for future use, such as emergencies, retirement, or major purchases.
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4
Business Savings
Funds retained by businesses instead of being distributed to owners or shareholders.
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5
National Savings
Total savings of a country, including both public and private savings.
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6
Economic Growth
Increase in a nation's output of goods and services, often fueled by savings and investment.
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7
Life-Cycle Hypothesis
Theory stating individuals save and borrow to maintain stable consumption throughout life stages.
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8
Permanent Income Hypothesis
People base consumption on expected long-term income rather than current income.
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9
Ricardian Equivalence
Theory that government borrowing does not affect total demand, as individuals anticipate future taxation and adjust savings.
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10
Present Bias
Tendency to prioritize short-term rewards over long-term benefits, leading to low savings rates.
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11
Loss Aversion
People fear losing money more than they value potential gains, affecting investment decisions.
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12
Mental Accounting
Categorizing money differently based on its source or purpose, influencing spending and saving behaviors.
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13
Herd Behavior
Following the crowd when making investment decisions, leading to market bubbles.
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14
Overconfidence Bias
Overestimating one's ability to predict market trends, leading to risky investments.
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15
Compound Interest
Interest calculated on both the initial principal and accumulated interest from previous periods.
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16
Wealth Building
Process of growing assets over time through savings, investments, and compounding.
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17
Retirement Planning
Strategy for saving and investing to ensure financial security after working years.
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18
Infrastructure Development
Government use of national savings to invest in roads, hospitals, and schools to boost economic efficiency.
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19
Venture Capital
Funding for startups and small businesses, often sourced from private savings and institutional investments.
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20
Capital Formation
The accumulation of capital assets (e.g., machinery, infrastructure) through investments funded by savings, driving productivity and economic growth.
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21
Consumption Smoothing
The practice of maintaining stable consumption levels over time by saving during high-income periods and dissaving during low-income periods, as per the Life-Cycle Hypothesis.
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22
Financial Security
The state of having sufficient savings or resources to cover emergencies and unexpected expenses, ensuring preparedness for life’s uncertainties.
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23
Social Safety Nets
Government-provided programs (e.g., pensions, unemployment benefits, healthcare) that reduce individuals’ need to save extensively for emergencies or retirement.
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24
Deficit Spending
Government expenditures that exceed revenue, often financed through borrowing, which may lead to anticipated future tax increases as per the Ricardian Equivalence Theorem.