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Essay / Research Paper Abstract
Economic or speculative bubbles have been seen over many centuries where investors seek to make a profit and assets become over valued. This 16 page paper looks at some of the bubbles that have impacted on the United States of America, starting wit the Mississippi Bubble looking at a range of bubbles through to the dot com bubble which collapsed in 2000 the paper discuses different types of bubbles and the boom and bust cycle many have created and considers the underlying economic theories that explain the occurrence and patterns associated with bubbles. The bibliography cites 15 sources.
Page Count:
16 pages (~225 words per page)
File: TS14_TEbubbles.rtf
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Unformatted sample text from the term paper:
boom and then bust economic cycles as they can only be fully recognized with hindsight with this boom and bust cycle often associated with the phenomena. An economic bubble occurs
when market conditions see the prices of assets from a single category, which can be anything from tulip bulbs stocks and shares, increase in price to very high levels which
are not reflective of the utility value of that asset (Lux, 1995). When a bubble busts there will be a significant fall in the value of the asset. This boom
and bust cycle can be seen as a positive feedback mechanism contrasting with the normal market conditions where it is negative feedback from equilibrium that determines prices (Lux, 19995). During
the bubble the prices of the assets can undergo a high degree of fluctuation and process cannot be predicted from supply and demand relationships only (Nellis and Parker, 2000).
The impact of bubbles is generally seen as negative on the economy as a whole resulting in the misallocation of resources, the failure
of resources to be used optimally which can be difficult under normal circumstances, as well as destabilising an economy with the crash that flows. The crashes can result in large
levels of wealth being destroyed and the potential for the crash to cause a depression of downturn in economic patterns in the economy (Galbraith, 1990). It has been argued that
it was the bursting of bubbles that created the conditions for the great depression in the US during the 1930s and globally during the 1990s (Kindlberger, 1989).
Keynes (1943) referred to these as occurring due to irrational behaviour and modern theories have included that of irrational exuberance. The first bubble often
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