Assume Policy Makers Implement Fiscal Expansion Unexpectedly

question 46

Multiple Choice

Assume policy makers implement fiscal expansion unexpectedly. Further assume that monetary policy is expected to keep interest rates constant in response to this unexpected fiscal policy. Given this information, we would expect that this will cause:

• A) stock prices to rise.
• B) stock prices to remain constant.
• C) stock prices rise initially followed by decreases.
• D) stock prices to fall.
• E) an ambiguous effect on stock prices.

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Definitions:

Hostile Takeover

An acquisition attempt by a company or individual without the consent or cooperation of the target company's board of directors.

Investment Banking Firm

An establishment engaged in finance that helps people, businesses, and government bodies acquire funds by underwriting or serving as the representative of the client in the release of securities.

Defensive Strategy

A business approach aimed at protecting the existing market share, products, and profitability against competitors' actions.

Congeneric Merger

Involves firms that are interrelated but that do not have identical lines of business. One example is Advanced Micro Devices' acquisition of ATI Technologies.