Author Question: For this question, assume that there is perfect arbitrage in the stock market. Given this ... (Read 130 times)

swpotter12 · **on:** Jun 30, 2018

For this question, assume that there is perfect arbitrage in the stock market. Given this assumption, economists believe that

A) movements in stock prices can be easily predicted.
B) movements in stock prices are largely unpredictable.
C) most stocks will diverge from their fundamental value.
D) stocks will generally earn a lower rate of return than bonds.
E) the rate of return on stocks will be equal to the rate of return on bonds.

Question 2

An open market purchase of bonds by the central bank will cause which of the following when a liquidity trap situation exists?

A) The interest rate will decrease.
B) The interest rate will not change.
C) Output will increase.
D) The money supply, M, will not change.
E) none of the above