A Common Rule of Thumb on Wall Street Says That

question 75

Multiple Choice

A common rule of thumb on Wall Street says that the sum of the inflation rate plus the market price-earnings ratio equals ________.

• A)10
• B)15
• C)20
• D)25
• E)30

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Definitions:

Convex Preferences

Consumer preferences where the consumer prefers averages or mixes of goods to extremes, represented graphically by convex indifference curves.

Monotonic Transformation

A monotonic transformation involves a function that either entirely increases or decreases, preserving the order of the original function’s elements.

Cobb-Douglas Preferences

A utility function used in economics to represent preferences of consumers, characterized by goods being perfect substitutes or complements to some degree.

Utility Function

An expression used in economics to quantify the happiness or satisfaction gained from consuming a set of goods or services.