Chapter EMA, Problem 3MCQ

To determine

To state: Whether the price of an asset will increase or decrease in an asset bubble.

Answer to Problem 3MCQ

The correct option is D i.e., increases due to expectations of price gains.

In this, the price of an asset is pressed to an irrationally high level due to the potential of further price gains.

Thus, an asset bubble happens when the price of an asset, such as bonds, real estate, stocks, or commodities, grows at a rapid pace without fundamentals, such as similarly fast-rising demand, to validate the price spike.

So, the correct option is D i.e. increases due to expectations of price gains. In an asset bubble, the price of an asset increases due to expectations of price gains.

Explanation of Solution

In this, the price of an asset is pressed to an irrationally high level due to the potential of further price gains.

Thus, an asset bubble happens when the price of an asset, such as bonds, real estate, stocks, or commodities, grows at a rapid pace without fundamentals, such as similarly fast-rising demand, to validate the price spike.

So, the correct option is D i.e. increases due to expectations of price gains. In an asset bubble, the price of an asset increases due to expectations of price gains.

Economics Concept Introduction

Introduction:

Asset bubble: In this, the price of an asset is pressed to an irrationally high level due to the potential for further price gains.

Thus, an asset bubble happens when the price of an asset, such as bonds, real estate, stocks, or commodities, grows at a rapid pace without fundamentals, such as similarly fast-rising demand, to validate the price spike.