Economists have focused more attention on the formation of expectations in recent years. This increase in interest can probably best be explained by the recognition that
A) expectations influence the behavior of participants in the economy and thus have a major impact on economic activity.
B) expectations influence only a few individuals, have little impact on the overall economy, but can have important effects on a few markets.
C) expectations influence many individuals, have little impact on the overall economy, but can have distributional effects.
D) models that ignore expectations have little predictive power, even in the short run.
Answer: A
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MB Chapter 7
- _______ and ________ may provide an explanation for stock market bubbles.
- Psychologists have found that people tend to be ________ in their own judgments.
- ______ occurs when people are more unhappy when they suffer losses than they are happy when they achieve gains.
- Survey evidence does conclusively show that
- Survey evidence may be a poor guide to market behavior because
- Tests of rational expectations in markets other than financial markets required the use of survey data from market participants. One problem with using survey data is
- Your best friend calls and gives you the latest stock market "hot tip" that he heard at the health club. Should you act on this information? Why or why not?
- In a rational bubble, investors can have ________ expectations.
- A situation when an asset price differs from its fundamental value is
- The tech stock crash of 2000 is evidence in support of
- The efficient markets hypothesis suggests that investors
- The efficient markets hypothesis indicates that investors
- For small investors, the best way to pursue a "buy and hold" strategy is to
- The advantage of a "buy-and-hold strategy" is that
- Which of the following types of information most likely allows the exploitation of a profit opportunity?
- According to the efficient markets hypothesis, purchasing the reports of financial analysts
- The efficient markets hypothesis suggests that allocating your funds in the financial markets on the advice of a financial analyst
- Evidence against market efficiency includes
- Evidence in support of the efficient markets hypothesis includes
- Mean reversion refers to the fact that
- Excessive volatility refers to the fact that
- A phenomenon closely related to market overreaction is
- When a corporation announces a major decline in earnings, the stock price may initially decline significantly and then rise back to normal levels over the next few weeks. This impact is called ________.
- The January effect refers to the fact that
- The small-firm effect refers to the
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