Even if the Fed attempts to control an asset bubble by raising interest rates to any reasonable degree,it is not clear that overly-optimistic investors would respond.

Question

Quizplus · Accepted Answer

Overly-optimistic investors may not respond to interest rate increases by the Fed as they may believe that the asset's value will continue to increase despite the increased cost of borrowing. This can lead to further asset price inflation, and the bubble may continue to grow.

Even If the Fed Attempts to Control an Asset Bubble