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An important part of the tech bust in 2001 was that firms became more pessimistic...

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Accounting

An important part of the tech bust in 2001 was that firms became more pessimistic about the future profitability of internet-related investment projects. In response, they substantially reduced their purchases of network equipment and software.

1. What effect will this increased pessimism have on long-term interest rates and the aggregate level of investment spending? Discuss the initial shock, and describe how long-term real interest rates will change to bring about a new equilibrium.

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