Suppose That Initially U

question 86

Essay

Suppose that initially U.S. households are saving only a small fraction of their incomes because they are relying on rapid increase in stock prices to increase their wealth. If stock prices decline and households decide to increase their saving rate, what will be impact on output in the new Keynesian view? Be sure to distinguish the short run from the long run.

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Definitions:

Society

A structured community of people bound together by similar traditions, institutions, or nationality.

Asian American

A term referring to Americans of Asian descent or origin, representing a diverse group from East Asia, Southeast Asia, and the Indian subcontinent.

Buying Patterns

Analysis of consumer purchasing habits to predict future purchasing behavior and preferences.

Assimilated

The process of adapting or becoming absorbed into a different culture or group.