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Economists are fond of calculating measures of elasticity. If we calculate the income elasticity of money as the %ΔM / %ΔPY, where M is the quantity of money held and PY is nominal income, would you suspect the coefficient to be positive, negative or zero? Will the absolute value be greater or less than 1? Be sure to explain your choices.
Market Risk Premium
The extra return over the risk-free rate that investors require to hold a risky market portfolio.
Beta
A measure of a stock's volatility in relation to the overall market; often used as a gauge of an asset's risk.
Security Market Line
A line that represents the relationship between risk and expected return in financial markets.
Market Risk Premium
The supplementary income expected by an investor from maintaining a risky market portfolio rather than holding risk-free investments.
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