In an Asset Bubble

question 45

Multiple Choice

In an asset bubble:

• A)depositors withdraw their deposits from banks until the bank fails.
• B)the price of an asset is pushed to an unreasonably high level because of expectations of further price gains.
• C)the price of an asset falls because demand for the asset is so high.
• D)savers and investors engage in maturity transformation by long-term borrowing and making short-term loans to take advantage of interest rate increases.

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Definitions:

Trading Security

A financial instrument that is bought and sold for the purpose of generating profits on short-term fluctuations in price.

Available-for-sale Security

A debt or equity security not classified as a held-to-maturity or trading security, which can be sold in the short term for capital gains.

Net Income

The total profit of a company after all expenses and taxes have been subtracted from total revenue.

Stockholders' Equity

The residual interest in the assets of a corporation that remains after deducting its liabilities.