This paper presents a simple macroeconomic model where government spending affects aggregate demand directly and indirectly, through an expectational channel. Prices are fully flexible and the model is static, so intertemporal issues play no role. There are three important elements in the model:...

This paper argues that short selling might give rise to bubbles that would otherwise not exist in equilibrium. It is crucial for the argument that short selling is not the same as issuing an asset: it may require buying the stock later on. An asset with no fundamental value might be traded at...