From the viewpoint of the individual investor, are stocks or bonds riskier? Explain.
What will be an ideal response?
Stocks are riskier in the sense that there is no guaranteed return. Individuals buy stock if they believe returns will be sufficiently high to justify the risk. Bonds give a known payment, plus return of principal (unless the company goes bankrupt). The risk to the bondholder is that inflation may eat away at the principal, and rising interest rates may adversely affect the bond’s value in secondary markets.
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Which of the following statements correctly identifies a reason why inflation can be used as a countercyclical policy tool?
A) Inflation sometimes increases the demand for workers that increases output and helps combat slowdowns. B) Inflation reduces money costs and hence stimulates an economy during slowdowns. C) Inflation increases consumer demand which is necessary for combating slowdowns. D) Inflation increases consumer confidence, which is an absolute necessity to counter act business cycles.
A competitive firm's total revenue minus its total opportunity cost equals its ________
A) marginal revenue B) economic profit C) opportunity cost D) normal profit