According to the Theory of Efficient Markets

question 113

Multiple Choice

According to the theory of efficient markets:

• A) investors use rules of thumb to make choices about which stocks to buy and sell.
• B) investors are able to use forecasts based on the dividend-discount model to generate above- average returns.
• C) a portfolio manager who charges no commission should not, on average, outperform an individual investor with access to the same funds.
• D) the stock price should remain constant.

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Definitions:

Keynesian Model

An economic theory stating that active government intervention is necessary to manage economic fluctuations and stimulate demand during downturns.

Money Supply

The sum of all funds available in an economy, including cash, coins, and checking and savings account balances, at a particular point in time.

Foreign Exports

Products or services that are manufactured in one nation and purchased by consumers in a different country.

Say's Law

Say's Law, also known as the law of markets, is an economic principle which suggests that production creates its own demand, positing that a supply of goods will ultimately lead to the creation of an equivalent demand.