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Suppose everyone believes that an increase in the unemployment rate will lower dividend payments in the...

Suppose everyone believes that an increase in the unemployment rate will lower dividend payments in the future. Suppose a week from tomorrow when the BLS announces the unemployment rate for March, it announces an increase, but stock prices do not change. Then this is evidence that:

A. there are animal spirit agents in the market

B. the interest rate must have risen

C. people already knew that the unemployment rate would be higher

D. that markets are not forward looking

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Answer #1

Solution:-Option D is correct

D. that markets are not forward looking

Explaination:-Here clrearly indicated markets are not forward looking to reduce the unemployment rate. Suppose everyone believes that an increase in the unemployment rate will lower dividend payments in the future. Suppose a week from tomorrow when the BLS announces the unemployment rate for March, it announces an increase, but stock prices do not change. Then this is evidence that that markets are not forward looking.

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