Explain how each of the following might make use of the futures market. (a) A lender who is worried that its cost of funds might rise during the term of a loan it has made (b) A speculator who believes strongly that interest rates will rise
What will be an ideal response?
(a) The lender could hedge the risk by selling futures contracts on Treasury bills.
(b) The speculator could buy futures contracts on Treasury bills.
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Expected utility theory predicts that individuals will fully insure in actuarily fair markets so long as their tastes are state-independent. How might adverse selection result in some individuals under-insuring?
What will be an ideal response?
Refer to the scenario above. Which of the following will happen in equilibrium if Harry is known to be trustworthy?
A) Tom will trust Harry and Harry will cooperate. B) Tom will trust Harry and Harry will defect. C) Neither of them will make any money. D) Only Harry will make money.
What does the deadweight loss from monopoly measure?
What will be an ideal response?
When real income ________, the demand curve for money shifts to the ________ and the interest rate ________, everything else held constant
A) falls; right; rises B) rises; right; rises C) falls; left; rises D) rises; left; rises