ECN 440 Lecture Notes - Credit Cycle, Tulip Mania, Money Supply
21 Oct 2013
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Document Summary
Fluctuations is the pace of expansions of real production is called the business cycle. A cycle characterized by rapid expansion followed by a rapid contraction. Stock market bubble: a surge in equity prices, often more than warranted by he fundamentals, followed by a drastic drop in prices as a massive sell-off occurs. Assets: real (property, gold, oil) and financial (stocks, bonds) The expansion of bubbles is usually fuelled by the expansion of credit, driven by excessive optimism (animal spirit/herd behavior) A bubble involves a non-sustainable pattern of price changes. Mania describes the frenzied pattern of purchases, often an increase in both prices and trading volumes. Bubble: increases in (asset) prices in the mania phase of the cycle. Virtually every mania is associated with a robust economic expansion. Investors become increasingly optimistic and more eager to pursue profit opportunities. Speculation intensify: increasingly large share of the purchases of these assets undertaken in anticipation of short-term capital gains.
