Explain why using leverage to purchase risky securities is so popular.
What will be an ideal response?
One example, cited in the text, is this: Suppose Oscar buys a risky stock for $100, using $20 of his own money and $80 that he borrows from Fred Financier. Oscar agrees to pay $4 in interest for the loan, and both agree that Oscar will forfeit the stock he purchases with Fred’s money if he fails to pay back the loan with interest ($84 total). If Oscar is lucky and the price of stock doubles to $40, Oscar would have made a 100 percent profit on his investment. But because he also invested the borrowed $80, his total gains are $200—nearly a 500 percent profit on his original $20 investment, even after he pays Fred back his $80 loan plus $4 in interest.
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When we compare shares of income earned by U.S. households, which of the following statements about the distribution of income is true?
A) Shares of income decrease as we move from the lowest quintile to the highest quintile. B) Shares of income increase as we move from the lowest quintile to the highest quintile. C) Shares of income remain fairly constant as we move from the lowest quintile to the highest quintile. D) Shares of income decrease as we move from the lowest quintile to middle quintile, and then decrease from the middle quintile to the highest quintile.
Autonomous aggregate expenditures increases by $100 million, the marginal propensity to consume is 0.60, marginal propensity to invest is 0.20, and the marginal propensity to import is 0.10. Calculate the change in income
What will be an ideal response?
To analyze aggregate productivity, economists typically assume ________
A) that the hours each person works varies with the wage rate B) that all of the capital and labor in the economy are fully utilized C) that output can increase only if inputs have become more productive D) all of the above E) none of the above
"Marriage bars":
a. encouraged married women to participate in the labor force. b. became more widespread in the 1920s c. forced female employees to leave work when they married. d. Both a and b are correct. e. Both b and c are correct.