What does a general, persistent decline in stock prices signal about an economy?
A)that the economy is about to enter a boom period because people will be able to buy stock for less money
B)that the economy is about to enter a recession because low stock prices may mean that people are expecting low corporate profits
C)nothing about the business cycle because stock prices can fall for many reasons
D)that the economy is about to enter a recession because low stock prices mean that corporations have had low profits in the past

Question

Quizplus · Accepted Answer

A persistent decline in stock prices typically signals that investors are expecting lower corporate profits, which can be a sign of an economic recession. Therefore, option B is the best choice. Option A is incorrect because low stock prices do not necessarily mean that the economy is about to enter a boom. Option C is incorrect because while stock prices can fall for many reasons, a persistent decline usually has economic implications. Option D is partially correct but not the best choice because low stock prices may reflect expectations of future profits rather than only past profits.

What Does a General, Persistent Decline in Stock Prices Signal