ECON 2301 Week 8 Quiz

ECON 2301 Week 8 Quiz | Assignment Help |  Central Texas College

Review Test Submission: Quiz 8

Question 1

Economists have developed models of risk aversion using the concept of

a. income and the associated assumption of increasing marginal wealth.

b. income and the associated assumption of diminishing marginal wealth.

 c. utility and the associated assumption of diminishing marginal utility.

d. utility and the associated assumption of increasing marginal utility.

Question 2

Consider the following two situations. Irene accepts a job where she will be driving in dangerous traffic, so she seeks auto insurance. After Victor buys health insurance, he visits the gym less frequently. Which of these person’s actions illustrates moral hazard?                  

            both Irene’s and Victor’s

            Irene’s but not Victor’s

            Victor’s but not Irene’s

neither Victor’s nor Irene’s

Question 3

The field of finance primarily studies                             

how society manages its scarce resources.

how society can reduce market risk.

firms’ decisions concerning how much to produce and what price to charge.

the implications of time and risk for allocating resources over time.

Question 4

Economists disagree as to whether                                  

stock prices reflect rational estimates of a company’s true worth.

the basic tools of finance reflect valid ideas.

the stock price of a company should reflect the company’s expected profitability.

there is any relationship between stock market fluctuations and fluctuations in the economy more broadly.

Question 5

According to the rule of 70, if the interest rate is 5 percent, how long will it take for the value of a savings account to double?                         

·        about 6.3 years

·        about 3.5 years

·        about 12 years

·        about 14 years

Question 6

As the number of stocks in a portfolio rises,                              

·        both firm-specific risks and market risk fall.

·        firm-specific risks fall; market risk does not.

·        market risk falls; firm-specific risks do not.

·        neither firm-specific risks nor market risk falls.

Question 7

An asset market is said to experience a speculative bubble when                              

·        the price of the asset appears to follow a random walk.

·        the market cannot establish an equilibrium price for the asset.

·        the asset is a natural resource and its supply is manipulated by foreign nations and foreign firms.

·        the price of the asset rises above what appears to be its fundamental value.

Question 8

Abby buys health insurance because she knows that she has health risks that wouldn’t be obvious to an insurance company. Brad buys home owners insurance and then is less careful to make sure he’s put out his cigarettes. The example with Abby                            

·        and the example with Brad illustrate adverse selection.

·        and the example with Brad illustrate moral hazard.

·        illustrates adverse selection; the example with Brad illustrates moral hazard.

·        illustrates moral hazard; the example with Brad illustrates adverse selection.

Question 9

A person who believes strongly in the use of fundamental analysis to choose a portfolio of stocks                               

·        is spending his or her time wisely if the efficient markets hypothesis is correct.

·        has a better chance of outperforming the market if stock prices follow a random walk than if they do not follow a random walk.

·        is interested in the likely ability of a corporation to pay dividends in the future.

·        almost always chooses to hold index funds in his or her portfolio rather than

·        actively-managed funds.

Question 10  

A judge requires Harry to make a payment to Sally. The judge says that Harry can pay her either $10,000 today or $12,000 two years from today. Of the following interest rates, which is the highest one at which Harry would be better off paying the money today?                             

·        11 percent

·        4 percent

·        6 percent

·        9 percent