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Principles of Economics 2e

2nd Edition
Steven A. Greenlaw; David Shapiro
ISBN: 9781947172364

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BuyFindarrow_forward

Principles of Economics 2e

2nd Edition
Steven A. Greenlaw; David Shapiro
ISBN: 9781947172364
Textbook Problem

If most people have rational expectations, how long will recessions last?

To determine

Opinion of people with rational expectation about recession period.

Explanation

Recession is a situation which leads to fall in level of output accompanied with decrease in price level significantly. If people are ration or they believe in ration expectation, it would further reduce prices in near future but ultimately adjustment will be done leading to reduce the period of recession.

Suppose the economy is experiencing a recession, which means price level is low accompanied with low economic growth. Due to such a situation, government announces investment in real-estate. This news will lead to following implications:

  1. Investment in real-estate will increase as people start expecting increase in prices of such a sector...

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