6. Economic pessimism often causes businessmen to cut back on their planned investment. Thus, pessimism tends to

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6. Economic pessimism often causes businessmen to cut back on their planned investment. Thus, pessimism tends to be self-fulfilling as the reduction in planned investment, magnified by the multiplier, reduces income and tends to trigger the recession that was forecast. In contrast, business optimism tends to induce firms to increase their current investment in the anticipation of strong future sales. Optimism can help fuel a recovery.

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Economics Private And Public Choice

ISBN: 9780123110404

2nd Edition

Authors: James D Gwartney; Richard Stroup; A H Studenmund

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