In the Parable of the Leaky Bucket, a Fundamental Problem

question 56

Multiple Choice

In the parable of the leaky bucket, a fundamental problem with government redistribution programs is identified.As long as the government only has 'leaky buckets' at its disposal:

• A)full egalitarian policies will always dominate competing policy options
• B)affirmative action programs are doomed to failure
• C)equality of economic opportunity is an unattainable goal
• D)it should not try to reach complete equality in income

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Definitions:

Expected Return

The anticipated return on an investment, factoring in the probability of various outcomes.

Security Market Line

A line that represents the relationship between the risk of investing in a security and its expected return, as per the Capital Asset Pricing Model.

Market Risk Premium

The extra yield an investor anticipates when they invest in a volatile market portfolio as opposed to assets that are free from risk.

Expected Return

The weighted average of all possible returns for an investment, with the weights being the probabilities of each outcome.