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Chapter 7 The Stock Market, the Theory of Rational Expectations, and the Efficient Markets Hypothesis 249

59)

Which of the following statements are true about rational expectations?

(a)

The evidence from studies using survey data is not as supportive of rational expectations as is the evidence from financial markets.

(b)

Survey evidence does indicate that if there is a change in the way a variable moves, then the way expectations of this variable are formed will change as well.

(c)

The stock market crash of 1987 indicates that the efficient markets hypothesis is not a valid theory.

(d)

All of the above.

(e)

Only (a) and (b) of the above.

Answer:

Question Status: Previous Edition

60)

Announcements of money supply increases in countries experiencing rapid rates of inflation are often followed by immediate interest rate increases. This behavior is consistent with which of the following?

(a)

Expectations of higher inflation in the near future

(b)

A tight current monetary policy

(c)

Rational expectations

(d)

Both (a) and (b) of the above

(e)

Both (a) and (c) of the above

Answer:

Question Status: Study Guide

61)

You observe that interest rates fall after an announcement by the Federal Reserve that the money supply has expanded over the past week. You might speculate that

(a)

market participants expect a surge in inflation in the next few months.

(b)

market participants don’t expect inflation to surge any time soon.

(c)

the efficient markets hypothesis has been refuted.

(d)

both (a) and (c) of the above are true.

Answer:

Question Status: Revised

62)

You observe that interest rates rise after an announcement by the Federal Reserve that the money supply has expanded over the past week. You might speculate that

(a)

market participants expect a surge in inflation in the next few months.

(b)

market participants do not expect inflation to surge anytime soon.

(c)

the efficient markets hypothesis has been refuted.

(d)

none of the above are true.

Answer:

Question Status: Revised

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