Imagine a Game Show on Television Where One Lucky Contestant

question 119

Multiple Choice

Imagine a game show on television where one lucky contestant is presented with four upside-down buckets that are numbered 1, 2, 3, and 4. Under one of the buckets is a $100 bill. Under each of the other three buckets is a $10 bill. After the game ends, the contestant will receive the amount of money that is under his or her bucket.
The host of the game show asks the contestant to choose one of the four buckets. After the contestant makes a choice, the host lifts one of the remaining three buckets to reveal a $10 bill under it. At this point, three buckets remain uncovered: the bucket that the contestant originally chose and the two buckets that were not uncovered by the host.
The host subsequently asks the contestant if he or she would like to keep the original bucket or change buckets to one of the two other buckets remaining.

-In the context of behavioral economics, the belief that outcomes that have not occurred in the recent past are more likely to occur soon, and that recent outcomes are unlikely to be repeated in the near future is best referred to as the:

• A) gambler's fallacy.
• B) base-rate fallacy.
• C) existential fallacy.
• D) hot-hand fallacy.
• E) broken-window fallacy.

Understand the function and mechanisms of the Federal Reserve System.

Identify the composition and responsibilities of the Federal Reserve Open Market Committee (FOMC).

Recognize the importance of deposit insurance in preventing bank runs.

Comprehend the impact of the Federal Reserve’s actions in historical banking crises.

---

Definitions:

Monopoly Power

It is the ability of a single seller or producer to control prices and total market output.

Optimal Output

The level of production that maximizes a firm's profits or minimizes its costs, depending on the context.

Incomplete Information

A situation where all parties in a transaction do not have full knowledge about actions, intentions, or preferences of other parties.

Economic Inefficiencies

Occurrences where resources are not allocated optimally, leading to lost potential output or welfare.