Explain how “herd behavior” affects the stock market and contributes to recession.
What will be an ideal response?
“Herd behavior” refers to the phenomenon that most people investing in the stock market tend to follow what other investors do. When purchasing securities is popular and widespread, members of the herd leap in, which accelerates the increase in securities prices. When buyers are optimistic, a high demand will drive up the prices of securities, and the investor is likely to buy more, and also likely be able to sell at a profit.However, when securities prices fall, investors who leveraged their investments cannot obtain more financing for further investing, so they do not continue to purchase. The drop in investment activity will drive down the prices of securities even further. Investors unable to obtain financing are more likely to sell at any price. Herd behavior will lead other investors to also abandon the market, with the result that prices plummet further. When this happens, corporations of many kinds will be unable to raise the money they need by issuing stocks and bonds. They may need to cut back on production and lay off workers. At this point, a serious recession is likely to be underway.
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Consider two countries: A and B. Assume that both countries are exactly similar until the year 2000. At the beginning of year 2000, both countries decide to change their strategy for economic growth
Country A plans to encourage immigration and increase human capital in the economy to achieve sustained growth, while Country B decides to make large investments in research and development to achieve sustained growth. Which of the two countries is more likely to experience sustained growth and why?
A defendant believes there is a 40 percent chance that the plaintiff will win $1,000,000 and a 60 percent chance that the plaintiff will lose and be awarded nothing (zero). The plaintiff believes that there is a 60 percent chance that they will win $1,000,000 and a 40 percent chance that they will be awarded nothing (zero). The plaintiff's litigation cost is $300,000 and the defendant's
litigation cost is $300,000. Which of the following statements is true? A) The defendant would be willing to pay up to $800,000 to settle. B) The plaintiff would be will to accept any amount greater than $200,000 to settle. C) The plaintiff would be will to accept any amount greater than $300,000 to settle. D) There is no economic incentive for either party to settle.
Using graphs to illustrate the concepts, absolute advantage
a. is shown with differences in slope of a production possibilities curve; comparative advantage is shown with a lower curve. b. requires a very steep curve; comparative advantage requires a curve with a shallow slope. c. on one good requires that the slope of the production possibilities curve be steeper for that good. d. is shown with a higher production possibilities curve; comparative advantage is shown with differences in slope of the curves.
Why do economists insist on emphasizing the difference between money and income? Why is this difference important in macroeconomics?