An entrepreneur with current income of $200,000 believes that her future income will either fall to $100,000 or rise to $300,000 with equal probabilities. Her rate of time preference is exactly offset by the interest rate. In the first of two periods, she spends $178,000 and saves $22,000 for the second period. Her behavior illustrates
a) a marginal propensity to consume of .89
b) the permanent income hypothesis
c) precautionary saving
d) the bequest motive
e) a borrowing constraint
c) precautionary saving
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A perfectly competitive producer faces a demand curve for its own product that is
A) downward sloping. B) upward sloping. C) horizontal. D) vertical.
Cyrus just graduated from flight school. He received multiple offers, but is waiting to hear back from all the jobs he applied to before he makes a decision. Cyrus is experiencing
A. frictional unemployment. B. seasonal unemployment. C. structural unemployment. D. cyclical unemployment.
A manager is attempting to assess the probability of a recession ending in the next six months and its impact on expected profitability. The manager believes there is a 75 percent chance the recession will end in six months and profits will return to $400 million. However, there is a 25 percent chance the recession will not end in six months, resulting in a $5 million loss. The expected profits over the next six months are:
A. $301.25 million. B. $395 million. C. $405 million. D. $298.75 million.
One of the consequences of the overstatement of the CPI is that
A. the poverty line is lower than it would otherwise be. B. Social Security taxes are lower than they would otherwise be. C. Social Security payments are higher than they would otherwise be. D. personal income taxes are higher than they would otherwise be.