Question

1. Are share prices reflective of earnings?

2. Discuss stock market bubbles and the wealth affect.

3. How does the prospect of future inflation, deflation and disinflation play a role in the stock market?

Answer 1

1.A company that can see profit coming through their products or the services offered by them have the guarantee but they wont be able to see the shares of the company stock rise price and these profits are called as earnings which helps the investors to know which companies are successful which will help the share prices more value added and make them successful.However the profits are known only when a dividend is paid out which will motivate the investor to buy more shares. 2.It is a type of a bubble in the stock market when the marketers drive stock price above their value in relation to some system of stock valuation.It is basically a price range that strongly exceeds the assets intrinsic values.The wealth effect is a theory in economics which indicates that a value of equity portfolio are on the rise because of the accelerating stock prices and people feel more comfortable to spend their wealth. 3.These play a major in the stock market and inflation is caused by shifts in demand and supply,its increase in the cost of living while the price of services and goods rises.Generally the accepted rate of inflation is around 2%or a little lower than this.Deflation is a decrease in general price levels throughout an economy,when the growth of an economy outpaces the growth of money supply.It is the opposite of inflation.Disinflation happens when the price inflation goes down the cause of disinflation are always contrast and it is either a decrease in the growth rate of the supply in money or a recession in the business.