Which of the Following Statements Is True About Models That

question 4

Multiple Choice

Which of the following statements is true about models that attempt to measure the empirical performance of the CAPM?

• A)The conventional CAPM works better than the conditional CAPM with human capital.
• B)The conventional CAPM works about the same as the conditional CAPM with human capital.
• C)The conditional CAPM with human capital yields a better fit for empirical returns than the conventional CAPM.
• D)Adding firm size to the model specification dramatically improves the fit.

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Definitions:

Demand Curve

A graphical representation of the relationship between the price of a good and the quantity demanded, typically downward sloping.

Giffen Good

A type of inferior good for which demand increases as its price increases, contrary to the typical law of demand.

Slutsky Substitution Effect

A concept in economics that describes how a change in the price of a good affects consumption patterns, separating the effect into income and substitution effects.

Indifference Curve

A graph that shows different combinations of two goods among which a consumer is indifferent, implying the same level of utility for each combination.