Question

A financial bubble starts to inflate when:________

a) investors become irrationally optimistic that an asset's price will continue to rise.
b) investors become irrationally pessimistic that an asset needs to be sold immediately.
c) a good experiences a rise in demand that is unexplained, increasing its price.
d) inflation begins to accelerate, and monetary and fiscal policy are ineffective at slowing its growth.

Answer 1

a) investors become irrationally optimistic that an asset's price will continue to rise.

Step-by-step explanation:

A financial bubble starts to inflate when investors become irrationally optimistic that an asset's price will continue to rise. This causes these investors to throw money into the investments without any prior investigation for fear of missing out on the potential profits. This causes the price of the investment to rise drastically as more and more individuals invest until it reaches a tipping point, and those that invested at the very start begin to sell their investment options and take profit. Which causes the "bubble" to pop and the price comes crashing down.