Use the Following to Answer Questions

question 147

Multiple Choice

Use the following to answer questions :
-(Figure: Income and Substitution Effects) Use Figure Income and Substitution Effects.Carlos is consuming his optimal consumption bundle at point A when the price of gasoline falls.The dashed line tangent to I₁ shows a hypothetical budget line reflecting:

• A) the original income,the original price of cell phone minutes,and the new price of gasoline.
• B) the new price of gasoline in terms of cell phone minutes and a change in income to keep Carlos on the original indifference curve.
• C) the new price of gasoline in terms of cell phone minutes and a change in income to allow Carlos to reach an indifference curve higher than I₁.
• D) the income and substitution effects.

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Definitions:

Expected Return

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

Risk-Free Rate

The hypothetical return rate on an investment that carries no risk of losing money, commonly illustrated by the interest rate on government securities.

Multifactor Model

A financial model that employs multiple factors in its calculations to explain market phenomena and/or equilibrium asset prices.