In the early expansion phase of the business cycle stock prices are: | A) | rising at a slower rate than they are in the later stages of an expansion. |
| | B) | rising at the same rate as they are in the later stages of an expansion. |
| C) | rising at a faster rate than they are in the later stages of an expansion. |
| | D) | stagnant as they are in the later stages of an expansion. |
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Answer and Explanation
In the early expansion phase of the business cycle, stock prices are increasing. This is due to the fact that sales are increasing but inputs costs will be fairly stable. Labor will not ask for wage increases because unemployment is still high. Idle plant and equipment will be pushed into service at little cost. Furthermore, firms usually emerge from recession leaner because they have shed their wasteful projects and excessive spending. Later on in the expansion, the growth in earnings and stock returns slows because input costs start to increase. Interest rates will also increase during late expansion, which is a further negative for stock valuation.
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发表于 2008-9-12 15:29
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