Questions for common knowleegde

Question 1

What is a stock market slump? (=Börseneinbruch)

1.
2.
3.

Answer 1

• sudden dramatic decline of stock prices
• significant loss of paper wealth
• lower share prices and trading volumes

Question 2

What are the effects of a stock market slump?

1.
2.
3.

Answer 2

• effects on private wealth, savings behaviour and consumption (macroeconomic question)
• also impact on corporate financing, e.g. financing is increasingly provided via banks (microeconomic question)
• opportunity for contrarians and value investors to buy

Question 3

What is paper wealth?

1.
2.
3.

Answer 3

• how much one´s asset could be solved for
• <-> real wealth
• e.g. one has house -> assessed value increases -> house can be sold for more

Question 4

What is a Contrarian?

Answer 4

• he chooses to put his money into assets that go against the grain of the market sentiment

Question 5

What are the opportunity costs of…

1. opening a new factory?
2. increasing government spending on a new high-speed rail?

Answer 5

1. not upgrading existing equipment and not expanding exisitng factories
2. reducing government spending on military activities

Question 6

An aircraft with 200 seats for a flight that cost 170 EUR. Each seats costs on average 850 EUR.
Should the airline sell a seat for less than 850 EUR?

Answer 6

• would be wrong to say the airline shoul never sell for <850 EUR
• if there are still 10 serts available shortly before departure and there are people willing to pay EUR 500 we can calculate:

How high are the additional costs per passenger? - luggage transport, on-boarding catering, …
As long these costs are smaller than the EUR 500, the airline increases profit.