Question
One of the important elements of the Keynesian perspective is the role of expectations about the future in shaping the economy of today. This is
One of the important elements of the Keynesian perspective is the role of expectations about the future in shaping the economy of today. This is important because those expectations don't have to be based on anything true or rational. If a large enough number of people come to expect that an ancient sea monster will awaken from its slumber to eat New York City next year, that will have real consequences on the housing market in New York City, no matter how absurd the expectation is. The sea monster doesn't have to be real in order to have a real economic impact. And by the way, irrationallygoodexpectations will have an impact too, not just irrationallybadones.
So I have two questions for you this week:
1. Suppose that most people come to expect that the COVID-19 pandemic will never end, and that we will have to continue with social distancing for the rest of our lives. Suppose also thatthis is not true, but people believe it anyway. What impact will it have on the economy?
2. Suppose that most people come to expect that a perfect cure for COVID-19 will become widely available in 2021 - a cure so effective that this disease will be reduced to the status of minor inconvenience, like the common cold. Suppose also thatthis is not true, but people believe it anyway. What impact will it have on the economy?
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