Whenever a Set of Stock Prices Go Unnaturally High and Subsequently

question 5

Multiple Choice

Whenever a set of stock prices go unnaturally high and subsequently crash down, the market experiences what we call a(n)

• A)financial meltdown.
• B)irrational behavior.
• C)stock market bubble.
• D)none of these choices are complete.

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Definitions:

Dollar Appreciated

A situation where the value of the US dollar increases relative to other currencies, making foreign goods and services cheaper for Americans.

Real Exchange Rate

The rate at which two different currencies can be exchanged, taking into account their respective purchasing power.

Nominal Exchange Rate

The rate at which one currency can be exchanged for another currency, without adjustment for inflation.

Purchasing-Power Parity

An economic theory that compares different countries' currencies through a "basket of goods" approach, to assess the relative value of each currency.