The theory behind Tobin's q indicates that:
A) the stock market may be expected to predict every turning point in real GDP.
B) the stock market may be expected to be closely tied to fluctuations in output and employment.
C) every time investment goes up we would expect the stock market to go down.
D) the stock market and the economy are basically independent of each other.

Question

Quizplus · Accepted Answer

Tobin's q theory suggests that the value of the stock market is closely tied to fluctuations in output and employment, indicating that there is a relationship between the stock market and the economy. However, this theory does not suggest that the stock market predicts every turning point in real GDP or that every time investment goes up, the stock market will go down.

The Theory Behind Tobin's Q Indicates That