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Suppose That Many Households Look to the Stock Market to Gauge

question 78

Essay

Suppose that many households look to the stock market to gauge how the economy is likely to perform in the future.When stock prices are rising,households will be optimistic about the future state of the economy and will increase their spending on houses and consumer durables,such as cars and furniture.When stock prices are falling,households will be pessimistic about the future and will cut back on their spending.If this view of the link between stock prices and household spending is correct,what will be the effect of a decline in stock prices on output in the new Keynesian view? Be sure to distinguish the short run from the long run.


Definitions:

Ethics

The branch of philosophy that deals with questions about morality, guiding principles on what is right or wrong in human conduct.

Criminal Justice System

The set of agencies and processes established by governments to control crime and impose penalties on those who violate laws.

Kant's Theory

A philosophical approach developed by Immanuel Kant, emphasizing duty, moral law, and the categorical imperative.

Offenders

Individuals who have committed a violation of the law or a specific offense.

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