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Daniel’s current wealth is $1000. He has been given a lottery ticket which has a 40% probability that he will win $24 and a 60% probability that he will win $600. Daniel’s utility function is u(w) = √w where w is his wealth. Calculate the least that Daniel would be willing to accept for him to sell the lottery ticket if he is an expected utility maximize.
Suppose you have a house worth $200,000 (wealth). Your utility of wealth is given by U(w) = ln(w). There is a small chance that a fire will damage your house causing a loss of $75,000. You estimate there is a 2% chance of fire.
a) What is your expected wealth?
b) What is your expected utility from owning the house?
c) Suppose you can add a fire detection/prevention system to your house. This would reduce the chance of a bad event to 0 but it would cost you $C to install. What is the most you are willing to pay for the security system? (Here is an identity you will find useful
When the economy is in a liquidity trap or deflation spiral … 1. expansionary monetary policy becomes ineffective to stimulate the level of output and income. 2. expansionary monetary policy becomes effective to stimulate the level of output and income. 3. contractionary monetary policy becomes ineffective to stimulate the level of output and income. 4. contractionary monetary policy becomes effective to stimulate the level of output and income.
1) How the Phillips Curve is related to the model of Aggregate Demand and Aggregate Supply. Explain using appropriate diagrams.
When a country imports more than it exports, what is the value of the net exports?
Select one:
a. Negative
b. Zero
c. Positive
d. Need more information
Countries trade ______.
Select one:
a. to reduce unemployment rate
b. to help each other
c. to specialize and reap the benefits from specialization, such as economies of scale
d. None of the options are correct
One of the following cannot be considered as source of demand for foreign currency.
Select one:
a. None of the options is correct
b. Exports
c. Demand to invest outside the domestic territory
d. Imports
Equilibrium exchange rate is determined ______.
Select one:
a. when demand for local currency meets the supply of local currency
b. when demand for foreign currency meets the supply for local currency
c. when demand for foreign currency meets the supply of foreign currency
d. when demand for local currency meets supply for foreign currency
World production will be greater when there is-------.
Select one:
a. self-sufficiency and specialisation
b. trade and specialisation
c. trade and non-specialised production
d. non-specialisation and self-sufficiency
What is 'Repo rate'?
Select one:
a. The rate at which commercial banks lend money to customers
b. none of the given options
c. The rate at which commercial banks borrow money from Reserve Bank
d. The rate at which commercial banks lend money to RESERVE BANK
