The role of expectations in shaping economic outcomes is crucial from "summary" of A Monetary History of the United States, 1867-1960 by Milton Friedman,Anna Jacobson Schwartz
Expectations play a crucial role in shaping economic outcomes. People's expectations about the future affect their decisions in the present. If individuals expect prices to rise, they may choose to buy goods now rather than later, leading to an increase in demand and potentially driving prices even higher. Conversely, if people anticipate a decline in prices, they may delay purchases, causing a decrease in demand and putting downward pressure on prices. These expectations can have a significant impact on economic dynamics. For example, if consumers expect higher inflation, they may demand higher wages to maintain their standard of living. This, in turn, can lead to cost-push inflation as firms raise prices to cover increased labor costs. On the other hand, if individuals anticipate deflation, they may be more hesitant to spend, leading to a decrease in aggregate demand and potential economi...
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