A Utility Function

question 43

Multiple Choice

A utility function

• A) is a stand-in for a more complicated function.
• B) is useful only in microeconomics, not macroeconomics.
• C) captures the preferences of the representative household over consumption and leisure goods.
• D) captures the representative firm's ability to produce goods and services.
• E) captures the maximum satisfaction of consumers.

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Definitions:

Nominal Rate

The stated interest rate of a loan or financial product, not adjusted for inflation or other factors that affect the real rate of return.

Effective Rate

The actual interest rate earned or paid on an investment, loan, or other financial product, taking into account the effect of compounding.

Compound Interest

This refers to the calculation of interest on the original amount of money deposited or borrowed as well as on the interest that has already accumulated over previous periods.

Zero-Coupon Bonds

Bonds that do not pay periodic interest payments and are sold at a significant discount from their face value, with the profit being the difference between the purchase price and the bond's face value at maturity.