ECONOMICS
FINANCIAL MARKETS
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Yes, I understand this from the notes
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No, I don’t understand this from the notes
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No, I don’t understand this, as I have not read the notes
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None of the above
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Detailed explanation-1: -An economic bubble (also called a speculative bubble or a financial bubble) is a period when current asset prices greatly exceed their intrinsic valuation, being the valuation that the underlying long-term fundamentals justify.
Detailed explanation-2: -Bubbles affect the economy because they prompt members of the population to lose lots of money and often culminate in monetary policy being tightened. Widespread losses can create financial panic, erode spending, and trigger unmanageable debt.
Detailed explanation-3: -Because speculative demand, rather than intrinsic worth, fuels the inflated prices, the bubble eventually but inevitably pops, and massive sell-offs cause prices to decline, often quite dramatically. In most cases, in fact, a speculative bubble is followed by a spectacular crash in the securities in question.
Detailed explanation-4: -A speculative bubble is a sudden increase in the price of an asset, asset class, or industry due to mere speculation, not facts. It often happens when there is an overestimation of factors that may raise asset values, including growth projections and price appreciation.