Alan Greenspan, the former Chairman of the Federal Reserve Board's Board of Governors, once described a large rapid increase in the nominal value of the stock market as "irrational exuberance." Why would the Federal Reserve Bank (the American central bank), which has the dual mandate of keeping the inflation rate ( cost of living) low and stable and keeping the unemployment rate close to its long-run sustainable rate, become concerned when the nominal prices of financial assets change rapidly in a short amount of time?
The term irrational exuberance is used to display unduly escalated asset prices in order to provide capital gains to certain beneficiaries in the stock market. This becomes a cause of concern because it unnecessarily increases uncertainty in the market and causes unanticipated inflation. Market investors become enthusiastic and this causes nominal increase in the price of assets without having a change in the fundamental values.
The fear is genuine because after reaching a peak stock market crashes because of the fact that there was actually no change in the real value of those assets. Due to the skepticism about such stock market crashes, Alan Greenspan shows his concerns about the stock market boom using the phrase irrational exuberance.
Alan Greenspan, the former Chairman of the Federal Reserve Board's Board of Governors, once described a large rapid increase in the nominal value of the stock market as "irrational exuberance....
1. When it comes to financial matters, the views of Aristotle can be stated as: a. usury is nature’s way of helping each other. b. the fact that money is barren makes it the ideal medium of exchange. c. charging interest is immoral because money is not productive. d. when you lend money, it grows more money. e. interest is too high if it can’t be paid back. 2. Since 2008, when the monetary base was about $800 billion,...