Chillingsworth Has a Neighbor, Shivers, Who Faces the Same

question 2

Multiple Choice

Chillingsworth has a neighbor, Shivers, who faces the same options for insulating his house as Chillingsworth.But Shivers has a larger house.Shivers's annual fuel bill for home heating is 1,200 dollars per year.Plan A will reduce his annual fuel bill by 15%, plan B will reduce it by 20%, and plan C will eliminate his need for heating fuel altogether.The plan A insulation job would cost Shivers 1,200 dollars, plan B would cost him 1,900 dollars, and plan C would cost him 13,200 dollars.If the interest rate is 10% and his house and the insulation job last forever, which plan is the best for Shivers?

• A)Plan B
• B)Plans A and B are equally good.
• C)Plan A.
• D)Plan C.
• E)He is best off using none of the plans.

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Definitions:

Flexible Exchange Rates

A monetary system in which the value of the currency is permitted to vary based on the foreign exchange market dynamics.

Dollar Price

The cost of a product or service expressed in terms of the amount of currency needed to purchase it.

Equilibrium Dollar Price

Refers to the price level at which the supply of dollars in the foreign exchange market is equal to the demand for dollars.

Flexible Exchange Rates

A foreign exchange system where the value of currencies is determined by market forces without direct government intervention.