Briefly explain what economists mean when they refer to the stock market as a random walk.
What will be an ideal response?
Student responses will vary but should accurately reflect the random walk theory. According to this theory, it is difficult to consistently pick winners in the stock market unless you have illegal inside information or are very lucky. If markets are operating efficiently, then stock prices will reflect all available information, and consistent, extraordinary profit opportunities will not exist. Someone who has a hot tip can only benefit from it if they are one of just a few people who know about it. Information that is available to large numbers of people will not be a source of profit.
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In the financial futures quotations, the total number of long positions outstanding is called
A) settlements. B) market activity. C) open interest. D) arbitrage.
The U.S. used high-pressure steam engines, whereas the British favored low-pressure engines. The reason for the American preference for high-pressure steam engines was that
(a) low-pressure steam engines, though more efficient, were complicated to build and operate and America lacked skilled labor compared to England. (b) the high-pressure steam engines used extravagant amounts of wood fuel. The U.S. abundance of wood compared to Europe made building high-pressure steam engines cheaper in the U.S. (c) Americans simply lagged behind technologically compared to England and continued to use the outdated high-pressure steam engines. (d) England had patents on the superior low-pressure steam engine and would not allow other nations to use the technology.