Problem: Assume that in January of 2015 the congressional budget office (CBO) released a report predicting that our economy would grow by 1.95 during the 2016 calendar year. assume that one year later the CBO releases an updated version of that same report that predicts our economy would grow by 1.57% during the calendar year.

Required:

a. Should stock prices move up, down, or stay flat upon the release of the revised figures in January 2016? explain your answer in detail. Assume that this revision is a surprise to the investor community.

b. If, instead, most investors had already revised their estimates prior to the updated CBO report, what would the response to be release of the 2016 CBO report?

c. How would stock prices differ, a week after the release of the revised CBO report, between the two hypothetical scenarios ( surprised vs. informed investors)? Explain why.