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Chapter 5: Q.5 (page 164)

What will happen to the demand for Rembrandt paintings if the stock market undergoes a boom? Why?

Short Answer

Expert verified

Demand for paintings will rise.

Step by step solution

01

Introduction

The amount demanded of an asset is directly related to wealth, expected return on asset, and liquidity of the asset, and negatively proportional to expected return on alternative asset, liquidity of the alternative asset, according to the theory of portfolio choice.

02

Explanation

A stock market boom indicates a sharp increase in share sales in the market, as well as a boost to the country's GDP. If the stock market rises, it improves people's wealth, which raises demand for paintings because more people can now purchase them.

As a result, demand for paintings will rise.

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