EC223 Study Guide - Quiz Guide: Efficient-Market Hypothesis, Bank Reserves, Reserve Requirement
Document Summary
Economics of the canadian banking and financial system. Read each part of the question very carefully. Show all the steps of your calculations to get full marks. Some economists think that the central banks should try to prick bubbles in the stock market before they get out of hand and cause later damage when they bust. Explain how it can do this using the gordon growth model. By raising interest rates the central bank can cause the required rate of return on equity to rise, thereby keeping stock prices from climbing as much. Also raising interest rates may help slow the expected growth rate of the economy and hence of dividends, thus also keeping stock prices from climbing. Whenever it is snowing when joe commuter gets up in the morning, he misjudges how long it will take him to drive to work. Otherwise, his expectations of the driving time are perfectly accurate.
