Which of the following regarding the relationship between stock prices and changes in the growth of the money supply is least accurate? Changes in the growth of the money supply: A) do not affect the value effect in stock returns. B) affect the size effect in stock returns. C) affect the growth of the economy.
I think the answer is B C is correct since growth in MS (quantity of money) will affect growth of the economy. B is correct since growth in MS will affect size of returns A is incorrect answer since growth in MS will cause inflation(deflation) and value of returns will decrease (increase).
I mean A not B is the right answer based on above explanation
A. But which SS this relates to? Economics?
I would go with B. I make an assumption that money supply only changes RFR rate. That should not change size and value effects in Fama-French model: http://en.wikipedia.org/wiki/Fama–French_three-factor_model C) is correct because in the short term increased money supply should boost the economy, though impact in the long run will be negative due to higher inflation. A) is correct due to what I said above about FF model. B) is incorrect due to the above assumption about FF model.
Agree with marakikus. What is the correct answer by the whichever material asked it?
Agree with marakikus. What is the correct answer by the whichever material asked it?
Which of the following regarding the relationship between stock prices and changes in the growth of the money supply is least accurate? Changes in the growth of the money supply: A) do not affect the value effect in stock returns. B) affect the size effect in stock returns. C) affect the growth of the economy. The correct answer was A) do not affect the value effect in stock returns. “As the money supply increases, the economy generally expands. As the money supply increases, stock returns increase. The size effect and the value effect in stock returns is affected by whether the growth in the money supply is expanding or contracting.” Source: Q bank; SS 7 R 24 LOS b