Why can't the expectations hypothesis stand alone as an adequate theory to explain yield curves?
What will be an ideal response?
The expectations hypothesis does a good job of explaining why interest rates of different maturities move together and for explaining why short-term rates are more volatile than long- term rates. What it cannot do is explain why yield curves usually are upward sloping. To use only expectations hypothesis implies that investors usually expect short-term interest rates to rise, which certainly is not the case.
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The quantity effect of a price reduction causes:
A) a decrease in revenue because of a lower price. B) an increase in revenue because of increased sales. C) an increase in labor demand due to increased sales of the product. D) a decrease in labor demand because of a lower price of the final product.
Alexander lives in an apartment building and gets a $250 benefit from playing his stereo. Mary, who lives next door to Alexander and often loses sleep due to the loud music coming from Alexander's stereo, bears a $350 cost from the noise. Mary would like to offer Alexander some money to turn down the volume on his stereo. If Mary had to hire a lawyer to draw up the contract, what is the maximum
amount she could pay to the lawyer to ensure that both Alexander and Mary would benefit from the agreement? a. an amount less than $100 b. an amount between $100 and $250 c. an amount between $250 and $350 d. Any amount could result in both parties benefiting from the agreement.
Which of the following has made it possible for investors without any special business skills to benefit from the ownership of corporate America?
A) all of the above B) the availability of mutual funds, which make it possible for even small investors to purchase a diverse stock portfolio at a low cost C) the virtual disappearance of business failures among corporations with publicly traded stock shares D) an increased tendency of small investors to buy and sell stock frequently
If producing a good generates pollution (a negative externality), from a social perspective
a. The price will be too low and the quantity produced will be too low b. The price will be too low and the quantity produced will be too high c. The price will be too high and the quantity produced will be too low d. The price will be too high and the quantity produced will be too high e. The price will be too low but the quantity produced will be correct