An asset-price bubble is defined as a:
A)gradual change in asset prices due to changes in expected earnings.
B)gradual rise in asset prices that is not justified by changes in interest rates or expected earnings.
C)rapid rise in asset prices that is not justified by changes in interest rates or expected earnings.
D)rapid change in asset prices due to changes in interest rates.

Question

Quizplus · Accepted Answer

A rapid rise in asset prices that is not justified by changes in interest rates or expected earnings is the definition of an asset-price bubble. Bubbles occur when investors buy assets based on the belief that the price will continue to increase, leading to a self-fulfilling prophecy that drives prices even higher, but ultimately results in an inevitable crash.

An Asset-Price Bubble Is Defined as A