Explain why using leverage to purchase risky securities is so popular.
What will be an ideal response?
One example, cited in the text, is this: Suppose Oscar buys a risky stock for $100, using $20 of his own money and $80 that he borrows from Fred Financier. Oscar agrees to pay $4 in interest for the loan, and both agree that Oscar will forfeit the stock he purchases with Fred’s money if he fails to pay back the loan with interest ($84 total). If Oscar is lucky and the price of stock doubles to $40, Oscar would have made a 100 percent profit on his investment. But because he also invested the borrowed $80, his total gains are $200—nearly a 500 percent profit on his original $20 investment, even after he pays Fred back his $80 loan plus $4 in interest.
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Teenage unemployment is substantially higher than unemployment among prime-age workers because teenagers
a. are more likely to switch jobs and move into and out of the labor force. b. are less likely to be in the labor force than are older workers since many teenagers are still in school. c. are more likely to be in the armed forces, therefore, they're counted as unemployed. d. generally think they can find jobs that are available only to experienced, highly skilled workers if they just search diligently enough.
Which of the following will increase economic freedom?
a. an increase in tariff rates imposed on imported goods b. an increase in government spending as a share of the economy c. elimination of regulations that make it difficult to start a business d. an increase in the rate of inflation and its variability