Generally many players in an economy make their

Info icon This preview shows pages 2–3. Sign up to view the full content.

Generally, many players in an economy make their decisions today based on their expectations. Various players and sectors of the economy form perceptions regarding then future and will make decisions today based on future expectations. For instance, consumers will buy more today if they expect prices to rise in future. That is their buying habits will depend on their inflation forecasts. This perception will increase the rate of inflation today. Similarly, investors will form their investment decisions depending on their projections of future trends of interest rates. In an economic crisis, the investors are likely to hold money if they believe the next direction of interest rates is downwards ( Rogoff 45) . Hoarding money will result in liquidity challenges in the economy, and this will further influence the rate of inflation and slowed economic activity. Forward signaling comes in play at such situations to assure the public that despite the financial circumstances a specific course of action will be undertaken and this influences the economic activities of today towards its desired direction by shaping the future expectations of the public.
Image of page 2

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern