How easy is it for fund managers and investment management ...

[leilurhhh]

How easy is it for fund managers and investment management companies to outperform or beat the stock market once their fees are taken into account?
 
  What will be an ideal response?

Question 2

Workers and firms are currently expecting the price level to increase from 110 to 114. The Federal Reserve then announces that it will be reducing the growth rate of the money supply.
 
  If the Fed's announcement is credible, and firms and workers have rational expectations, describe how the expectations of firms and workers will be affected and how the change in expectations will affect the unemployment rate.

[blakeserpa]

Answer to Question 1

When a single stock is picked at random, there is a 50 percent chance that the stock willoutperform the total stock market in the next year. Consequently, it is possible to outperform the stock market in a single year even if the investment manager has no skill.It has been discovered that successful historical asset managers tend to perform no better in the next period than pure chance would predict.
A-head: INVESTMENT ACCOUNTS
Concept: Outperforming the stock market

Answer to Question 2

Workers and firms were expecting an inflation rate of 3.6, but when the Fed announces it will be reducing the money supply, workers and firms rationally expect this will reduce inflation. Based on the expectation that inflation will fall, workers are willing to accept lower nominal wages and firms will pay lower nominal wages so that the real wage is unchanged. If the real wage is unchanged, the level of employment remains the same, and there is no impact on the unemployment rate.