Suppose Jack and Kate are at the town fair and are choosing which game to play. The first game has a bag with four marbles in it-1 red marble and 3 blue ones. The player draws one marble from the bag; if it is red, they win $20 and if it is blue, they win $1. The second game has a bag with 10 marbles in it-1 red, 4 blue, and 5 green. The player draws one marble from the bag; if it is red, they win $20; if it is blue, they win $5; and if it is green, they win $1. Both games cost $5 to play. Kate is considering whether to play the second game. If Kate only cares about the expected value of the outcome and does not care about risk, she should:
A. compare the cost of playing the game with the value of her time.
B. play if the cost of playing the game is greater than the expected value of the payoff.
C. not play since she never wins anything.
D. play if the cost of playing the game is less than the expected value of the payoff.
Answer: D
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If the Federal Reserve wants to increase the money supply, it should:
A. increase reserve requirements. B. increase the interest that it pays on reserves. C. increase the discount rate. D. conduct open-market purchases.
If good “A” is represented on the horizontal axis and good “B” on the vertical axis, then the steeper the production possibilities frontier at a given level of production of good “A,” the
A. larger the opportunity cost of producing an extra unit of good “A.” B. larger the quantity of resources being devoted to the production of good “B.” C. smaller the quantity of resources being devoted to the production of good “A.” D. smaller the opportunity cost of producing an extra unit of good “A.” E. greater the returns to scale in the production of good “A.”
The Fed is a central bank and as such
A) does business only with the federal government. B) provides banking services to banks but not individuals. C) provides banking services to individuals and firms. D) does business with international organizations such as the United Nations. E) is where the Federal Government turns when it needs to borrow.
Which of the following statements reflects the belief of the critics of industrial policy? a. The government allocates scarce resources more efficiently than markets
b. Industrial policy could evolve into a government giveaway program. c. Industrial policy gives domestic industries a competitive advantage over important trading partners. d. Industrial policy encourages unfavorable terms of trade with foreign countries. e. Industrial policy overprotects the domestic producers.