Expectation Formation and Endogenous Fluctuations in Aggregate Demand

within the framework of this paper constitute deviations from a long run trend
and argues that government intervention can be welfare improving. Moreover,
the paper quantifies the intangible notions of overheating, overborrowing, and
output gap.

In summary, the paper gives an example of an equilibrium route towards
endogenous fluctuations in aggregate demand. The fluctuations are the result
of equilibrium actions taken by rational utility maximizing agents.

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