When a "bubble" arises, asset prices are driven by:
A) policymakers.
B) changes in aggregate demand and aggregate supply.
C) shifts in money growth rate.
D) shifts in market psychology and successive waves of irrational exuberance.

Question

Quizplus · Accepted Answer

When a bubble arises, asset prices are driven by shifts in market psychology and successive waves of irrational exuberance. This means that investors become overly optimistic about the potential returns on an asset and continue to drive up its price even though there may not be any underlying fundamental reason for it to be worth so much. As more and more investors jump on the bandwagon, the bubble continues to grow until it eventually bursts, and asset prices plummet.

When a "Bubble" Arises, Asset Prices Are Driven By