Figure 3.22: High Expected Demand Creates a Virtuous Circle
Figure 3.22 is a diagram illustrating that high expectations for future product demand can initiate a virtuous circle. This positive feedback loop occurs when firms, anticipating high demand, coordinate their investment and hiring. This leads to increased employment and spending, which in turn raises actual demand and profits, validating the initial optimistic expectations.
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Ch.3 Aggregate demand and the multiplier model - The Economy 2.0 Macroeconomics @ CORE Econ
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Example of a Virtuous Circle in a Two-Firm Economy
Evaluating a Regional Economic Initiative
Imagine several large companies in a region all decide to expand their factories and hire new employees at the same time. Arrange the following outcomes in the logical order they would occur to create a self-reinforcing economic expansion.
In an economy where most businesses are hesitant to expand due to concerns about low consumer spending, a single large manufacturing firm decides to unilaterally invest in a new factory and hire 500 new workers. Assuming no other firms follow suit, what is the most probable outcome for this single firm's expansion?
The Mechanics of a Self-Reinforcing Economic Expansion
Figure 3.22: High Expected Demand Creates a Virtuous Circle