Jessica Must Choose Option a or Option B

question 193

Multiple Choice

Jessica must choose option A or option B. Option A gives her $10,000 for sure. Option B gives her $5,000 if a fair coin toss shows heads and $15,000 if it shows tails. If Jessica is risk averse her utility of wealth curve becomes

• A) flatter as her wealth increases and she will choose option A.
• B) flatter as her wealth increases and she will choose option B.
• C) steeper as her wealth increases and she will choose option A.
• D) steeper as her wealth increases and she will choose option B.

---

Definitions:

Inflation Rate

How quickly the average cost of goods and services goes up, resulting in a drop in the ability to purchase.

Nominal Interest Rate

The interest rate before adjustments for inflation, representing the face value of interest payments on loans or investments.

Fisher Effect

The one-for-one adjustment of the nominal interest rate to the inflation rate

Inflation

A sustained increase in the general price level of goods and services in an economy over time, leading to a decrease in the currency's purchasing power.