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Questions and Answers
An economic bubble is a situation where the market price of an asset is unjustifiably inflated for an extended period due to speculative demand.
True
Bubbles can only arise in rapidly developing new areas of the economy, such as the dot-com industry in the 1990s.
False
The greater fool theory explains that naive market participants buy overvalued assets, hoping to sell them profitably to a greater fool.
True
Economist Hyman P. Minsky was the first to identify the five stages of a bubble: displacement, boom, euphoria, profit-taking, and panic.
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The development of the dot-com bubble in the 1990s was fueled by startups that had already begun to earn money and directed their funds towards marketing to inflate interest and attract even more funds.
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The chain of the greater fool theory breaks when a participant cannot find another fool to sell the asset to.
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