Think of at least nine examples, three of each, that display a positive, negative, or no correlation between two economic variables. In each of the positive and negative examples, indicate whether or not you expect the correlation to be strong or weak
What will be an ideal response?
Answer: Answers will vary by student. Students frequently bring up the following correlations. Positive correlations: earnings and education (hopefully strong), consumption and personal disposable income (strong), per capita income and investment-output ratio or saving rate (strong); negative correlation: Okun's Law (strong), income velocity and interest rates (strong), the Phillips curve (strong); no correlation: productivity growth and initial level of per capita income for all countries of the world (beta-convergence regressions), consumption and the (real) interest rate, employment and real wages.
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Mexico and the members of OPEC produce crude oil. Realizing that it would be in their best interests to form an agreement on production goals, a meeting is arranged and an informal, verbal agreement is reached. If both Mexico and OPEC abide by the agreement, then OPEC's profit will be $200 million and Mexico's profit will be $100 million. If both Mexico and OPEC cheat on the agreement, then OPEC's profit will be $175 million and Mexico's profit will be $80 million. If only OPEC cheats, then OPEC's profit will be $185 million, and Mexico's profit will be $60 million. If only Mexico cheats, then Mexico's profit will be $110 million, and OPEC's profit will be $150 million. You may find it helpful to fill in the payoff matrix below. src="https://sciemce.com/media/4/ppg__rrr0818190951__f1q380g1.jpg" alt="" style="vertical-align: 0.0px;" height="203" width="377" />To Mexico, the payoff to cheating is either:
A. $80 million or $110 million.
B. $150 million or $200 million.
C. $100 million or $110 million.
D. $60 million or $100 million.
If nothing else changes, the ________ the current exchange rate, the ________ is the expected profit from holding dollars, all other things remaining the same
A) higher; larger B) lower; smaller C) lower; larger D) The premise of the question is wrong because the exchange rate has nothing to do with expected profit from holding dollars.
One school of anti-trust thought argues that, rather than ensuring efficiency, anti-trust laws are really aimed at
A) protecting small independent firms against large corporations. B) outlawing all monopolies whether they perform "bad acts" or not. C) price differentiation due to differences in quality and cost. D) restricting interlocking directorates.
A risk-averse individual is offered a gamble that promises a gain of $1000 with probability 0.25 and a loss of $300 with probability 0.75 . Given this situation, he or she will:
a. definitely take the gamble. b. definitely not take the gamble. c. definitely take the gamble if his or her income is high enough. d. take an action that cannot be determined given the information available.