Which of the following phenomena shows that risk aversion is the characteristic of many people?
A. Gambling
B. Investing in one stock rather than a portfolio
C. Auto insurance
D. Looting
Answer: C
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Normative statements
i. describe how the world is. ii. describe how the world ought to be. iii. depend on people's values and cannot be tested. A) ii only. B) i and iii. C) iii only. D) i only. E) ii and iii.
If prices in the New Keynesian model were perfectly flexible, then
A) there would be a role for monetary policy. B) the output gap would be positive. C) the equilibrium real interest rate would be the natural rate of interest. D) the output gap would be negative.
Cole is refinishing an antique china cabinet and has already spent $180 on the restoration. He expects to be able to sell the cabinet for $360 . Cole discovers that he needs to do an additional $200 worth of work to make the cabinet worth $360 to potential buyers. He could also sell the cabinet now, without completing the additional work, for $100 . What should Cole do?
a. He should sell the cabinet now for $100. b. He should keep the cabinet since it wouldn't be rational to spend $380 restoring a cabinet and then sell it for only $360. c. He should complete the additional work and sell the cabinet for $360. d. It does not matter which action he takes since the outcome will be the same either way.
Arlo is offered a job in Des Moines, where the CPI is 60, and a job in New York, where the CPI is 125 . Arlo's job offer in Des Moines is for $48,000 . How much does the New York job have to pay in order for the two salaries to represent the same purchasing power?
a. $23,040 b. $52,000 c. $79,200 d. $100,000