Elaine owns a beautiful diamond ring she purchased for $2,500. When she has it appraised she learns that it is now worth $3,000. Based on this information:
A. Elaine's wealth is unchanged.
B. Elaine's saving this year has increased by $500.
C. Elaine's saving this year has decreased by $500.
D. Elaine has experienced a $500 capital gain.
Answer: D
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Dan, age 19, may have trouble buying insurance at a low price because
A) the insurance company has private information that he is a risky driver. B) the insurance company has private information that his signals are valid. C) insurance companies fear that he has private information that his deductible is too high. D) insurance companies fear that he has private information that he is a risky driver.
The "information barrier" that is the root cause of business cycles in the Lucas model is that
A) workers observe the prices of what they personally buy, but cannot observe the general price level. B) workers do not know when changes in the price level mean changes in the prices of the goods they buy. C) firms do not know when changes in the price of the good they sell matches changes in the price level and thus their marginal cost. D) firms do not know if a change in the price level will have any effect on their marginal cost and thus their willingness to supply.