As the chapter points out, there have been many cases where derivatives have led to a lot of abuse. If this is the case, why do derivatives exist?
What will be an ideal response?
When used properly, derivatives are very helpful financial instruments. They allow people to transfer risk to those most willing to bear it and as a result they can undertake profitable but risky projects that they otherwise wouldn't. The economy, as a result, performs more efficiently.
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Why do preference reversals occur?
What will be an ideal response?
The authors explain that the marginal cost of production does not have to be constant in order to maximize profits under intemporal price discrimination
Which of the following is NOT an example of changing marginal costs under profit-maximizing intertemporal price discrimination? A) Marginal cost increases sharply after the initial marketing stages when the product is sold to the broader market of consumers. B) Marginal costs decline over time due to learning-by-doing. C) Marginal costs decline over time because the producer sells less expensive versions of the product in later stages of marketing (e.g., hard-cover versus paper-cover books). D) Marginal costs decline over time due to economies of scale.
A reserve ratio of 10% means that the deposit expansion multiplier is _________.
Fill in the blank(s) with the appropriate word(s).
Average labor productivity is determined by:
A. consumption, investment, government spending, and net exports. B. the number employed, unemployed, and the labor force participation rate. C. the real interest rate, the nominal interest rate, and the rate of inflation. D. the quantity and quality of human capital, physical capital, technology, natural resources, entrepreneurship, and the legal and political environment.