What Does a General, Persistent Decline in Stock Prices Signal

question 12

Multiple Choice

What does a general, persistent decline in stock prices signal about an economy?

• A)that the economy is about to enter a boom period because people will be able to buy stock for less money
• B)that the economy is about to enter a recession because low stock prices may mean that people are expecting low corporate profits
• C)nothing about the business cycle because stock prices can fall for many reasons
• D)that the economy is about to enter a recession because low stock prices mean that corporations have had low profits in the past

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Definitions:

Cheques

Documents that are written, dated, and bear a signature, instructing a bank to pay a designated amount of money to the holder.

Daily Interest Rate

The rate at which interest accrues on a loan or investment, calculated on a daily basis.

Treasury Bills

Short-term government securities issued at a discount from par value and maturing at face value, with maturities ranging from a few days to 52 weeks.

Lockbox System

A service provided by banks to companies for the receipt of payment from customers, involving the use of a post office box to collect and process payments.