One Valuable Lesson Investors Should Learn from the Stock Market

question 88

Multiple Choice

One valuable lesson investors should learn from the stock market behavior during the late 1990s and early 2000s is that the Fed:

• A) can control the stock market.
• B) can reduce the idiosyncratic risk of investing but not the systematic risk.
• C) can eliminate the risk from investing.
• D) cannot prevent a stock market decline.

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Definitions:

Income Elasticity

A gauge of the extent to which the consumption of a good or service is affected by alterations in the income levels of consumers.

Inferior Good

A type of good for which demand decreases when consumer income rises, contrary to normal goods where demand increases with rising income.

Excise Tax

A specific tax levied on particular goods or services at the point of manufacture or sale, often included in the price of the product.

Supply Curve

A graphical representation of the relationship between the price of a good or service and the quantity of it that producers are willing to supply.