Assume that the utility function of an individual is represented as U = ?W - 0.001W; where W (his present wealth) = $250,000 . He considers investing in a gamble which would double his wealth if he wins but still leave him with $250,000 if he loses. Given that his probability of winning is 0.6, calculate his expected wealth from the bet
a. $300,000
b. $400,000
c. $250,000
d. $100,000
B
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Contractionary policies are policies designed to
A) increase the level of real GDP. B) increase the federal deficit. C) reduce the level of real GDP. D) increase government spending.
Which of the following factors will make the demand for a product more elastic?
A) The product has no close substitutes. B) A very small proportion of income is spent on the good. C) A long time period has elapsed since the product's price changed. D) The change in the product's price was unexpected.
Refer to Figure 18-1. Area B + C represents
A) the portion of sales tax revenue borne by consumers. B) the portion of sales tax revenue borne by producers. C) the excess burden of the sales tax. D) sales tax revenue collected by the government.
If you believe that the LM curve is vertical, what type of policy would you recommend to stimulate the economy?
A) An increase in government spending B) A reduction in government spending C) An increase in the money supply D) A reduction in the interest rate