Chapter 7: Q.24 (page 210)
Why does entry occur?
Entry occurs as a result of the industry's above-average profit margins.
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If higher money growth is associated with higher future inflation, and if announced money growth turns out to be extremely high but is still less than the market expected, what do you think will happen to long-term bond prices?
You are considering purchasing a -year bond and follow the theory of rational expectations. If you have just read the annual report of the central bank in your country that states interest rates are higher than expected, will you buy the bond today or in the next month?
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 sharply increased in the past week, you should go out and buy stocks? Why or why not?
Can a person with rational expectations expect the price of a share of Google to rise byin the next month?
What are the implications of behavioral finance?
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