What do economists mean when they characterize households and firms as forward looking?
What will be an ideal response?
Economists assume that both consumers and firms consider the future in making consumption and investment decisions today. Consumers make decisions about allocating consumption over a lifetime, while firms make investment decisions based on expectations about future profitability.
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If the random walk theory is correct, a prudent investor might choose her stock portfolio by
a. throwing darts at the newspaper's financial page. b. spending money to consult a stock forecaster. c. spending time analyzing past stock performance. d. not investing in stocks at all, since price behavior is completely erratic.
Discount rate policy is most often
A. lowered when market rates rise. B. used to actively control the money supply. C. the Fed’s primary tool of monetary control. D. passively changed by the Fed to follow market rates.