The difference between irrational bubbles and rational bubbles is
A)irrational bubbles occur in reality; rational bubbles do not.
B)an irrational bubble does not burst; a rational bubble does.
C)no economists believe in irrational bubbles; all economists believe in rational bubbles.
D)an irrational bubble inevitably bursts; a rational bubble does not.
E)government policy cannot correct an irrational bubble problem; government policy can correct a rational bubble problem.

Question

Quizplus · Accepted Answer

The key difference between irrational bubbles and rational bubbles is that irrational bubbles inevitably burst while rational bubbles do not. Irrational bubbles occur when the market value of an asset becomes divorced from its underlying fundamental value due to investors' irrational exuberance or herd mentality. Rational bubbles, on the other hand, arise due to rational economic factors such as changes in interest rates or changes in technology that lead to changes in the fundamental value of an asset. Rational bubbles do not necessarily lead to an inevitable burst because the market value remains aligned with the fundamental value of the asset.

The Difference Between Irrational Bubbles and Rational Bubbles Is