If greater stock prices can lead to greater investment spending, should central bankers ever worry about stock prices becoming too high?
What will be an ideal response?
Yes they should. If stock prices become irrationally high, as many feel they did in the technology sector in the United States in the late 1990s and early 2000s, the existing firms in that sector have a very strong incentive to invest and entrepreneurs have strong incentives to build businesses. The problem can be if the increases in stock are not based on well-reasoned projections of future earnings the economy may actually be allocating resources inefficiently, and this inefficient allocation of resources can be extremely costly both in the short run as share prices eventually fall (or worse crash.) leading to closings and layoffs. But the long-run costs can also be significant since many financial intermediaries will be reluctant to fund future investment and savers may be reluctant to put funds into stocks.
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Between 1836 and 1851 travel time between New York and Chicago was cut from
A. a month to two days. B. a month to a week. C. two weeks to one week. D. two weeks to two days.
The above figure displays
A) income-inequality curves. B) Gini Coefficients. C) Lorenz curves. D) Laffer curves.
A rational consumer who prefers one apple to two oranges, and two oranges to one orange,
a. must prefer two oranges to one apple b. must prefer one apple to one orange c. must prefer two oranges to two apples d. must be indifferent between two oranges and two apples e. might prefer one orange to one apple
Currently, the marginal cost equation for a shoe manufacturing company is given by MC = 10 + 2Q. The market price per pair is $60. How many units should the company produce?
What will be an ideal response?