If You Believe in the Reversal Effect, You Should

question 25

Multiple Choice

If you believe in the reversal effect, you should

• A) buy bonds in this period if you held stocks in the last period.
• B) buy stocks in this period if you held bonds in the last period.
• C) buy stocks this period that performed poorly last period.
• D) go short.
• E) buy stocks this period that performed poorly last period and go short.

---

Definitions:

Budget Deficits

The situation where a government's expenditures exceed its revenues over a particular accounting period, leading to borrowing or debt accumulation.

Regulatory Policies

Rules or directives formulated by a governing body to regulate activities within specific areas or industries for public benefit.

Low Down-payment Loans

Loan types that require a smaller initial payment from the borrower, often used in the context of home mortgages.

Interest Rate Policy

A component of monetary policy, often set by a central bank, that determines the level of interest rates to influence economic activity.