Explain why a company offering homeowners insurance policies would want to insure homes across a wide geographic area
What will be an ideal response?
One of the lessons from this chapter is the ability to reduce risk through diversification, and one way to effectively diversify is through spreading of risk. Since the homes can be exposed to losses which can hit specific areas, like hurricanes, tornadoes, wild fires, floods, etc. (a form of idiosyncratic risk). An insurance company would not be spreading risk effectively if all or most of the homes they insured were located in one specific area. By insuring homes across a wide geographic area the insurance company can effectively spread risk.
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Which of the following would NOT cause a shift in the IS curve?
A) an increase in the domestic real interest rate B) an increase in consumer confidence C) a decrease in the expected future profitability of capital D) a decrease in government purchases
The belief that tobacco is a "gateway drug" is consistent with
a. the idea that tobacco and marijuana are substitutes. b. the idea that an increase in income causes a decrease in the demand for tobacco and an increase in the demand for marijuana. c. the idea that lower cigarette prices are associated with less use of marijuana. d. most of the available evidence.
Refer to the diagram. If aggregate supply is AS 1 and aggregate demand is AD 0 , then:
A. at any price level above G a shortage of real output would occur.
B. F represents a price level that would result in a surplus of real output of AC.
C. a surplus of real output of GH would occur.
D. F represents a price level that would result in a shortage of real output of AC.
In the above figure, suppose the economy is initially at point a. If the nominal interest rate increases, there is a movement to point such as
A) b. B) c. C) d. D) e.