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Article: Why Policymakers Should Relax-And Learn to Respect the Stock-Market Bubble: Since stock-market prices signal business managers to invest, bubbles can mislead managers into investing when it is not pro1/2table. True, this only becomes apparent after the bubble bursts.
- Article from:
- Banking Wire
- Article date:
- August 15, 2005
CopyrightCOPYRIGHT 2005 SourceMedia, Inc. This material is published under license from the publisher through the Gale Group, Farmington Hills, Michigan. All inquiries regarding rights should be directed to the Gale Group. (Hide copyright information)
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On the face of it, it's perplexing that variations in the stock market should effect the overall economy. After all, on each side of a stock-market transaction is a buyer and a seller. Following such a transaction, the 1/2rm can continue to produce the same goods and services since all the employees still work for the 1/2rm, the 1/2rm still owns the same plant and equipment, and the particular ways of using these inputs are still known.
But the stock market's ups and downs can have very real, if not direct, effects on the economy. Stock-market bubbles are a case in point. The inevitable crash that follows a bubble has the potential to cause recession-the Great ...