Which of the following is an example of risk diversification?
A) an individual purchasing only IBM stock
B) an insurance company writing earthquake insurance only for the Los Angeles area
C) an individual investing all of her savings in a single, new firm
D) a lumber mill purchasing trees from various forests across the western United States
D
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The _____ is the change in the purchasing power of assets that causes spending to change when the price level changes
a. purchasing power effect b. interest rate effect c. substitution effect d. income effect e. real-balance effect
The recessionary GDP gap is
A. Reduced by shifting aggregate demand to the left. B. Equal to the spending multiplier. C. The amount by which equilibrium GDP falls short of full-employment GDP. D. Small unless the unemployment rate is very low.
Use the following graphs for a perfectly competitive market in the short run to answer the next question.
The graphs suggest that in the long run, assuming no changes in the given information,
A. buyers will leave the industry. B. more buyers will come to the market. C. some firms will exit from this industry. D. new firms will enter the industry.
The potential for a decline in product quality due to asymmetric information is commonly referred to as
A) the lemons problem. B) planned obsolescence. C) diminishing marginal product. D) the externality problem.