Your bike is worth $100 and if you park it outside at school there is a 25% chance that it will be stolen. Your utility function for money is U = (M)2. Assume throughout that the bike value and money are interchangeable since you could sell the bike instantly at its value if necessary. What is the maximum you would pay security to check in your bike?
What will be an ideal response?
The offer would have to leave you with at least a 7500 pleasure level. The square root of 7500 is $86.60 so you would pay up to $13.40 to protect your bike.
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The Federal Reserve conducted the policy of quantitative easing primarily when
A) the interest rate was very sensitive to the change in the money supply. B) the interest rate was close to zero. C) the interest rate was relatively high. D) the interest rate was too erratic to be controlled.
Which of the following is a tool the Fed uses to adjust the quantity of money?
i. The Fed can change the interest rate banks charge for loans to their prime customers. ii. The Fed can change the discount rate on loans to banks. iii. The Fed can buy or sell government securities. A) i only B) ii only C) iii only D) i and iii E) ii and iii
An economy can produce either of these two combinations of goods X and Y: 1,000X and 0Y or 400Y and 0X. Furthermore, the opportunity cost between the two goods is always constant. Which of the following combinations of the two goods, X and Y, is it possible for the economy to produce?
A) 700 units of X and 280 units of Y B) 600 units of X and 250 units of Y C) 400 units of X and 150 units of Y D) 100 units of X and 600 units of Y E) 300 units of X and 280 units of Y
The multiplier effect refers to the fact that a change in spending (aggregate demand) will
What will be an ideal response?