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Unformatted text preview: The largest stock market boom in U. S. history occurred between 1995 and 2000. The S&P index rose by 25% per year. Why there was a boom appears to be a puzzle; most people believe the boom was merely a bubble. The large decline in stock prices caused large declines in wealth. 4. How does the stock market affect the economy? When stock prices rise, household wealth increases, which leads to increases in consumer spending. Investment also rises as firms can raise more money per share to finance investment projects. Both forms of spending raise GDP and growth and income. 5. What was the particular effect of the stock market on the economy from 1995-2000? The boom of the economy between 1995-2000 was fueled by the stock market boom. Estimates show that had there been no stock market boom, the economy would not have looked historically unusual....
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This note was uploaded on 09/14/2009 for the course ECON 304L taught by Professor Staff during the Fall '07 term at University of Texas.
- Fall '07