John is trying to decide whether to expand his business or not. If he continues his business as it is, with no expansion, there is a 50 percent chance he will earn $100,000 and a 50 percent chance he will earn $300,000. If he does expand, there is a 30 percent chance he will earn $100,000, a 30 percent chance he will earn $300,000 and a 40 percent chance he will earn $500,000. It will cost him $150,000 to expand. If John decides to expand based on expected value, it means that:
A. the sum of expected earnings from expanding and from not must exceed $150,000.
B. his expected earnings from expansion must exceed $150,000.
C. the difference in expected earnings from expanding versus not must exceed $150,000.
D. the difference in expected earnings from expanding versus not must not exceed $150,000.
Answer: C
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A) the Federal Reserve must reduce the money supply. B) the federal government must decrease its spending and increase net exports. C) the federal government's expenditures must be lower than its tax revenue. D) the Federal Reserve must raise interest rates and lower the required reserve ratio.