For the Following Questions Refer to Figure 16

question 90

Multiple Choice

For the following questions refer to Figure 16.2 below.
-Your uncle asks you to explain the price of stock prices based on the financial capital arbitrage equation.He shows you the graph shown in Figure 16.2,which shows the Dow Jones Industrial (DJI) Average for 2000-2010.He asks you to explain the cause in the rise of stock prices for the years 2002-2006.You tell him:

• A)"As the DJI rises,there are financial capital gains which drive up stock prices."
• B)"The rise in the DJI implies there was an incentive for Congress to increase corporate tax rates,which would have led to falling capital investment.With less capital,stock prices rise."
• C)"The rising DJI leads to falling dividend payments which would lead to a decline in physical capital accumulation.With less capital available,the marginal product of capital rises,leading to higher stock prices."
• D)"I wasn't paying attention the day we covered this in class."
• E)"Rising capital gains,as shown in the figure,have no impact on stock prices."

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Definitions:

Mineral Supplement

A product taken orally that contains minerals which the body needs for good health but may not be consuming in sufficient amounts through diet alone.

Pica

An eating disorder characterized by the consumption of non-nutritive, non-food substances over a period of at least one month at an age where this behavior is considered developmentally inappropriate.

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The force exerted by circulating blood upon the walls of blood vessels, measured in millimeters of mercury (mmHg).