ECONOMICS:PRIN.+POLICY-MINDTAP (1 TERM)
14th Edition
ISBN: 9781337912396
Author: Baumol
Publisher: CENGAGE L
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Question
Chapter 30, Problem 1DQ
To determine
Explain the witnessing a bubble.
Expert Solution & Answer
Explanation of Solution
Here, it is typical argument about whether or not there is a bubble, if price rises then there was not a bubble. From the year 2000 to year 2005, housing prices increases by 50 percent across the U.S. This moderately considerable increase also suggests that a bubble existed. Though, the markets like NY, MIA, and SD, housing prices increases by 77%, 96%, and 118%, respectively. It is very unlikely that these drastic price increases could have been powered by changes in fundamentals. Thus, to conclude that assumption on future price increases which means to conclude that a bubble existed at that point in time.
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Chapter 30 Solutions
ECONOMICS:PRIN.+POLICY-MINDTAP (1 TERM)
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- Provide an example of an asset market that you think could be an economist's definition of market bubble and explain why?arrow_forwardWhat is the relationship between risk and return in finance? Why does this relationship hold in the financial markets?arrow_forwardHow did the stock market boom led to the Housing bubble and the 2008 Financial Crises? Draw three parallels between the 2008 Financial Crisis and the 2020 Pandemic Recession If the risk associated with a company goes up, what would you expect to happen to the price of its stock? And if the risk associated with a company declines, what would you expect to happen to the price of its stock?arrow_forward
- Some charge that the Crisis of 2008 was caused by the greed of Wall Street firms and other bankers. Do you agree?arrow_forwardWhat is Tesla Inc. in 2018 all about?arrow_forwardIn chapter 7, "Financial Markets," of the book Naked Economics, the author, Charles Wheelan, states, that, "...all financial instruments - no matter how complex the bells and whistles - are based on four simple needs." Which of the below is NOT of these "simple needs"? Raising Capital. Assumption of risk. Insuring Against Risk.arrow_forward
- Mr. John Dela Cruz, wanted to start investing in the stock market, which of the following financial intermediaries can help him? *A. BanksB. Pension Fund CompaniesC. Brokerage FirmsD. Insurance CompaniesE. Cooperativesarrow_forwardBriefly describe how the advent of a financial crisis may increase the different categories of risks faced by financial institutions.arrow_forwardCentral banks have injected moral hazard into global markets through 'bail-outs' and as lenders of last resort, which skews investor behavior toward risky assets because the downside of risk is being underwritten by the central banks. Thus, bubbles occur, and bubbles are bound to burst. Critically discuss this statement in 2000-3000 words.arrow_forward
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