If inflation is completely anticipated
A) borrowers lose in the economy. B) firms lose because they incur menu costs.
C) lenders lose in the economy. D) no one loses in the economy.
B
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Suppose there is a 30% chance that an oil spill will occur in an area and the economic damage of the potential spill is $1 million. What is the expected value associated with the spill?
a. $3,000,000 b. $1,000,000 c. $300,000 d. $30,000 e. $3,000
Ashwini is thinking of buying travel insurance (which pays her if she needs to cancel her trip) for her trip to Cancun over spring break. There is a 5 percent chance that she will need to cancel her trip
Without insurance she would lose the full $2,000 price of the trip; with insurance she would get a full refund of $2,000. The premium for this insurance is $105. Which of the following is CORRECT? I. The expected value of Ashwini's loss is $100. II. If Ashwini is risk averse she is willing to buy the insurance only if its price is less than $100. A) I only B) II only C) I and II D) neither I nor II