Questions from Financial Markets

Q: “Human fear is the source of stock market crashes, so

“Human fear is the source of stock market crashes, so these crashes indicate that expectations in the stock market cannot be optimal.” Is this statement true, false, or uncertain? Explain your answer....

Q: “Forecasters’ predictions of inflation are notoriously inaccurate, so their expectations

“Forecasters’ predictions of inflation are notoriously inaccurate, so their expectations of inflation cannot be optimal.” Is this statement true, false, or uncertain? Explain your answer.

Q: What is the basic activity of banks?

What is the basic activity of banks?

Q: “Whenever it is snowing when Joe Commuter gets up in the

“Whenever it is snowing when Joe Commuter gets up in the morning, he misjudges how long it will take him to drive to work. Otherwise, his expectations of the driving time are perfectly accurate. Consi...

Q: If a forecaster spends hours every day studying data to forecast interest

If a forecaster spends hours every day studying data to forecast interest rates, but his expectations are not as accurate as predicting that tomorrow’s interest rates will be identical to today’s inte...

Q: Suppose that increases in the money supply lead to a rise in

Suppose that increases in the money supply lead to a rise in stock prices. Does this mean that when you see that the money supply has had a sharp rise in the past week, you should go out and buy stock...

Q: You wish to hire Ricky to manage your Dallas operations. The

You wish to hire Ricky to manage your Dallas operations. The profits from the operations depend partially on how hard Ricky works, as follows. If Ricky is lazy, he will surf the Internet all day, an...

Q: You own a house worth $400,000 that is located

You own a house worth $400,000 that is located on a river. If the river floods moderately, the house will be completely destroyed. This happens about once every 50 years. If you build a seawall, the r...

Q: Now, you believe the dealer knows more about the cars than

Now, you believe the dealer knows more about the cars than you. How much are you willing to pay? Why? How can this be resolved in a competitive market?

Q: You are in the market for a used car. At a

You are in the market for a used car. At a used car lot, you know that the blue book value for the cars you are looking at is between $20,000 and $24,000. If you believe the dealer knows as much about...