How can diversification reduce idiosyncratic risk but not systematic risk?
What will be an ideal response?
Since the returns on most assets do not move together, holding different assets reduces idiosyncratic risk. However, systematic risk is common to all assets, so holding different assets will not reduce systematic risk.
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When compared with China, the growth of clothing exports originating in Bangladesh clearly illustrates the Ricardian model of comparative advantage. Discuss and explain
What will be an ideal response?
What happens if the Brazilian real appreciates relative to the U.S. dollar?
A) Brazilians will buy fewer U.S. goods, which generates an increase in the quantity supplied of dollars. B) The quantity demanded of reals increases as U.S. residents want to buy more Brazilian products. C) The quantity of reals supplied increases because the lower price (in reals) for U.S. goods induces Brazilians to buy more U.S. products. D) The U.S. Federal Reserve Bank increases the supply of dollars to the world economy.
Under a system of flexible exchange rates, which of the following will cause the nation's currency to depreciate in the exchange market?
a. an increase in foreign incomes b. a domestic inflation rate of 10 percent while the nation's trading partners are experiencing stable prices c. an increase in domestic interest rates d. a reduction in interest rates abroad
The changes contained in the 1986 and 1993 tax reforms
A. Reduced the variation in the nominal tax rates. B. Resulted in a top marginal tax bracket of 85 percent. C. Increased the variation in the effective tax rates. D. Broadened the tax base and also raised tax rates.