Which of the following actions might we logically expect to result from rising stock prices?
A)Jim increases his consumption spending.
B)Firms sell fewer shares of new stock.
C)Firms spend less on investment.
D)People will save less.

Question

Quizplus · Accepted Answer

Rising stock prices increase the wealth of people who own stocks, leading to an increase in consumption spending.

Answer: B 
 When stock prices rise, firms are more likely to sell new shares of stock because they can raise more money at higher prices.

Answer: C 
 Rising stock prices may reduce firms' incentive to spend on investment because they can raise funds more easily by selling shares of stock.

Answer: D 
 Rising stock prices may lead to increased saving, as people feel wealthier and more secure in their financial situation.

Which of the Following Actions Might We Logically Expect to Result