Economic Theory Predicts That People Make Choices in a Manner

question 92

Multiple Choice

Economic theory predicts that people make choices in a manner that

• A) makes them well liked by others.
• B) makes them better off.
• C) reflects the fact that resources are unlimited.
• D) shows that they do not respond to monetary incentives.

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Definitions:

Security Market Line

A representation in financial markets that depicts the relationship between the risk of an asset and its expected return.

Expected Inflation Rate

The anticipated rate at which the general level of prices for goods and services will rise over a period of time.

Risk Averse

The preference to avoid uncertainty, referring to the behavior of investors who prefer lower returns with known risks over higher returns with unknown risks.

Risk-Free Rate

An ideal rate of return on an investment with no risk, typically represented by government bond yields.