Bobby is offered a job as a salesperson in which there is a 50 percent chance that he will make $2,000 and a 50 percent chance that he will make $10,000. Bobby's utility of wealth curve is shown in the figure above
What is Bobby's expected income from taking this job? A) $4,000
B) $6,000
C) $2,000
D) $10,000
B
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Suppose, after undergoing genetic testing, you discover that you have a health condition that could result in the emergence of a disability which would make it impossible for you to continue to work. The probability of this happening is 50%. Currently your expected lifetime earnings are $5,000,000, but if the disability hits, your expected lifetime earnings will consist primarily of income earned from government support programs -- and will not add up to more than $1 million. a. Suppose that you are risk averse and your tastes are state-independent. Illustrate your expected utility in a graph with lifetime consumption on the horizontal and utility on the vertical axis. b. Illustrate how much you would be willing to pay for full insurance. c. Illustrate what you showed in (b) in a
different graph that has consumption in the "good" state on the horizontal and consumption in the "bad" state on the vertical. d. What would a full menu of actuarily fair insurance contracts look like in your graph from part (c)? Where would you optimize in that graph? e. Now suppose that you believe consumption will be more meaningful if the health condition does not materialize. What changes in your graph from part (d)? What will be an ideal response?
Refer to Figure 26-12. In the dynamic AD-AS model, if the economy is at point A in year 1 and is expected to go to point B in year 2, the Federal Reserve would most likely
A) not change interest rates. B) increase the inflation rate. C) increase interest rates. D) decrease interest rates.
Which of the following is the most correct statement about the relationship between inflation and unemployment?
a. In the short run, falling inflation is associated with falling unemployment. b. In the short run, falling inflation is associated with rising unemployment. c. In the long run, falling inflation is associated with falling unemployment. d. In the long run, falling inflation is associated with rising unemployment.
If a 2 percent increase in the price of product X causes the demand for product Y to increase by 6 percent, then:
A. X and Y are complements. B. X and Y are substitutes. C. X and Y are independent goods. D. the demand for X is elastic.