GradReady Real-World Finance Practice Exam

A bear market is defined as a market condition characterized by a significant decline in prices, usually by 20% or more from recent highs. This decline reflects widespread pessimism and negative investor sentiment regarding the economy or the financial markets in general, often resulting in a prolonged period of declining stock prices.

The identification of a bear market typically arises during downturns in the economy or during periods of high inflation, increased interest rates, or geopolitical uncertainties. Investors tend to sell off their stocks, which contributes to the downward momentum in prices. A bear market can also affect investor confidence, leading to hesitance in spending and investing, which can further exacerbate economic downturns.

In contrast, other options describe market conditions that do not align with the characteristics of a bear market, such as stability in prices, rising prices, or minimal trading activity.