Explain what a mutual fund is and give an example of how they can help an investor diversify.
What will be an ideal response?
Student response will vary. A sample response follows. Mutual fund companies are financial intermediaries that sell portfolios of stocks and bonds. When someone buys a mutual fund, they gain a share in that fund’s entire portfolio of securities. This can enable someone to diversify by spreading their investment across hundreds of companies at a time, rather than directly investing in just a few companies. For example, if Ulrich has $5,000 to invest, he could buy a few shares of stock in Amazon. If he invests that $5,000 in a mutual fund index fund, however, his investment will include some Amazon stock but also stock from hundreds of other companies.
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An insurance company requires homeowners it insures to have smoke detectors in their homes. The insurance company is trying to combat the
A. adverse selection problem. B. the free-rider effect. C. moral hazard problem. D. "lemons" problem. E. none of the above
What is meant by the concentration of an industry? How is concentration measured? What are likely causes of high concentration?
What will be an ideal response?
The short-run Phillips curve shifts around because of changes in:
A. expectations of employment. B. expectations of inflation. C. the money supply. D. expectations of real income.
Technological innovations are not necessarily major scientific breakthroughs.
Answer the following statement true (T) or false (F)