Stock market bubbles have real effects in the economy because:

Question

Quizplus · Accepted Answer

When stocks are overvalued and divert capital to less-productive uses, it can lead to a misallocation of resources and potentially harm overall economic growth. This can be especially problematic when the bubble inevitably bursts, as investors may panic and sell off their stocks, causing a market crash and further economic disruption. Overvalued stocks may also contribute to income inequality, as those who own stocks may see significant gains while others do not benefit.

Stock Market Bubbles Have Real Effects in the Economy Because