Suppose there is a report that the unemployment rate unexpectedly increased in the previous month. To what extent will the expected central bank response to this news affect how stock prices will respond to this report of a higher than expected unemployment rate? Explain
What will be an ideal response?
The effect on stock prices will be ambiguous, all else fixed. What the Fed is expected to do in response can change this. If the Fed is expected to act to keep interest rates constant, Y will fall and stock prices will fall. If the Fed is expected to offset any output effects by reducing rates, stock prices will rise.
You might also like to view...
The above figure shows the demand curve for movie rentals from Redbox. At which of the following prices does Redbox have the maximum total revenue?
A) $5.00 B) $3.50 C) $2.50 D) $0.00
The modern view of technological advance is that it:
A. is rooted in the independent advance of science, an element largely external to the market system. B. is rarely carried out by oligopolists or pure monopolists. C. is an internal element of capitalism, occurring in responses to profit incentives. D. necessarily destroys existing monopoly power.