Explain how a diversified portfolio can reduce fluctuations in returns even when the economy as a whole is experiencing contractions and expansions.
What will be an ideal response?
If an investor divides the holdings among various companies, then the investor’s portfolio may perform satisfactorily even if one company goes broke. Moreover, if one company specializes in producing luxury items, which do well in prosperous periods but very badly during recessions, and another company sells inexpensive items, economic fluctuations will impact these companies in opposite directions. In effect, the “ups” and “downs” will offset each other. If an investor holds stock in both companies, the investor’s overall risk is obviously less than if the investor owned stock in only one. All other things being equal, a portfolio containing many different types of securities tends to be less risky and feature less fluctuations in returns than a portfolio with fewer types of securities
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Many economists criticize protectionism because it causes losses to consumers and eliminates jobs in domestic industries that use protected products. Why, then, do some people support protectionism?
A) Supporters of protectionism in high-income countries believe that wages will fall as a result of competition with firms from developing countries. B) Supporters of protectionism believe that free trade will lead to inflation. C) The criticisms of economists are based on theory. In fact, protectionism increases consumer and producer surplus as well as employment. D) Supporters of protectionism believe free trade will cause their countries to lose their comparative advantage.
Among the factors contributing to externally induced cycles are all of the following except
a. changes in international exchange rates b. clustering of innovations c. the interaction of the multiplier and accelerator d. changes in consumer confidence e. population booms
In the long run, a perfectly competitive firm earns no accounting profits
a. True b. False Indicate whether the statement is true or false
The idea that "externalities arise because something of value has no price attached to it" is associated with
a. public goods, but not with common resources. b. common resources, but not with public goods. c. both public goods and common resources. d. neither public goods nor common resources.