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Asset Bubbles - Assignment Example

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Economies are made up of numerous markets, all of which act as substitutes or complements to one another. One of the fundamental components of economic activities is…
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Asset Bubbles
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Asset "Bubbles" Affiliation: Pricing is a fundamental concept in economics, and it influences almost every aspect of economic undertakings. Economies are made up of numerous markets, all of which act as substitutes or complements to one another. One of the fundamental components of economic activities is the asset market. The asset market is primarily made up of stocks and real estate. The demand and supply of stocks or real estate influences asset prices, with provisions of regulation and price control in cases where the government intervenes as need be (Rapp, 2009). Asset prices experience substantial movements from time to time, with or without such movements being linked to economic fundamentals. Asset price movements that are not related to economic fundamentals result in the occurrence of asset bubbles.
The role of government in the economy encompasses both protection and intervention. Conservative politics are relatively resistant to change, but they do not overlook the role that government plays in the regulation and control of economic activities (Evanoff, Kaufman & Malliaris, 2012). The occurrence of asset bubbles and related scenarios in the economy trigger critical decision making pursuits among involved stakeholders. The fact is such occurrences distort economic performance, leading to the realization of variant hardships in the many sectors of the economy. In this respect, the government stands a chance to manage the situation through protection and intervention. This means that the government should remain vigilant over sectorial "animal spirits" in order to protect the economy and safeguard public interests, as well as take relevant actions in the event that such "animal spirits" bursts (Evanoff, Kaufman & Malliaris, 2012). The idea is to create coherence among economic variables for enhanced economic performance.
Evanoff, D., Kaufman, G. & Malliaris, A. (2012). New Perspectives on Asset Price Bubbles.
Oxford: Oxford University Press.
Rapp, D. (2009). Bubbles, Booms, and Busts: The Rise and Fall of Financial Assets. New York:
Springer. Read More
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