Answer the following statements true (T) or false (F)
1) The expected value of an outcome takes into consideration the associated risk.
2) The greater the risk associated with an outcome and the more risk averse the decision maker, the more likely a high insurance premium will be paid.
3) Because increased costs reduce the return on investment, shareholders may prefer managers make decisions based on the risk and not on the expected profit.
4) Placing all of your investment funds into one stock is an example of diversification.
5) Plaintiffs can be risk averse.
1) FALSE
2) TRUE
3) FALSE
4) FALSE
5) TRUE
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Answer the following questions:
a. What is the equation of exchange? Explain each component. b. What assumptions are placed on the equation of exchange to generate the quantity theory of money? c. Explain the quantity theory of money and what it implies about the impact of changes in the money supply on real output and prices.
As competitors enter a monopolistically competitive industry, the incumbent firms demand curves shift
a. To the left and become less elastic b. To the right and becomes less elastic c. To the left and becomes more elastic d. To the right and becomes more elastic
The real rate of interest equals 5.0 percent and the anticipated rate of inflation is 3.0 percent. What does the nominal rate of interest? equal?
If a 5% cut in the price of a product causes the quantity demanded to rise by 10%, the demand is
A. unit elastic. B. inelastic. C. perfectly elastic. D. elastic.