Expectations influence economic outcomes from "summary" of The General Theory of Employment, Interest, and Money by John Maynard Keynes
The level of employment in an economy is significantly influenced by the expectations of individuals and businesses regarding future economic conditions. When people believe that the future will be prosperous, they are more likely to spend money and invest in businesses, leading to increased economic activity and higher levels of employment. On the other hand, if individuals and businesses have pessimistic expectations about the future, they are more likely to save money and reduce spending, which can lead to a decrease in economic activity and higher levels of unemployment. Expectations also play a crucial role in determining interest rates in an economy. When people expect interest rates to rise in the future, they are more likely to borrow money at lower rates in the present to take advantage of the current conditions. This increased borrowing leads to higher levels of investment and economic growth. Conversely, if individuals expect interest rates to fall in the future, they may delay borrowing money, which can lead to lower levels of investment and economic stagnation. Furthermore, expectations can influence the decisions of policymakers and central banks. If individuals and businesses believe that the government will implement policies that will stimulate economic growth, they are more likely to invest in businesses and spend money, which can lead to increased economic activity. Conversely, if people expect the government to implement contractionary policies, they may reduce their spending and investment, leading to lower levels of economic growth.- Expectations play a crucial role in shaping economic outcomes. The beliefs and perceptions of individuals and businesses regarding future economic conditions can have a significant impact on levels of employment, interest rates, and overall economic growth. It is essential for policymakers and central banks to consider these expectations when formulating policies to ensure stable and sustainable economic development.
