An Economic Model Is a

question 45

Multiple Choice

An economic model is a

• A) realistic version of an economic environment.
• B) detailed version of an economic issue.
• C) fictional representation of an entire economy.
• D) simplified representation of an economic environment.

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Definitions:

Unsystematic Risk

The risk of price change due to the unique circumstances of a specific security, as opposed to the market as a whole.

Market Risk Premium

The extra return expected by investors for taking on the risk of investing in the stock market over a risk-free rate.

Security Market Line

A line representing the relationship between the expected return of a market security and its risk, as measured by beta.

Systematic Risk

The collective risk for all investments in a market or a specific part of the market that cannot be offset through diversification.