Which of the following statements is correct?
A)A general,persistent decline in stock prices may signal that the economy is about to enter a boom period because people will be able to buy stock for less money.
B)A general,persistent decline in stock prices may signal that the economy is about to enter a recession because low stock prices may mean that people are expecting low corporate profits.
C)A general,persistent decline in stock prices may signal that the economy is about to enter a recession because low stock prices mean that corporations have had low profits in the past.
D)Expectations about the business cycle have no impact on stock prices.

Question

Quizplus · Accepted Answer

A general and persistent decline in stock prices may signal a bear market where investors are pessimistic about the economy's future prospects. Low stock prices may mean that people are expecting low corporate profits, and this can signal a lack of confidence in the economy's ability to grow. This could result in a recession or a period of economic contraction. Additionally, lower stock prices could lead to lower levels of consumer and business confidence which can adversely affect the economy.

Which of the Following Statements Is Correct