Author Question: Suppose an investor equally allocates their wealth between a risk-free asset and a risky asset. If ... (Read 111 times)

big1devin

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Suppose an investor equally allocates their wealth between a risk-free asset and a risky asset. If the MRS of the current allocation is less than the slope of the budget line, then the investor should:
 
  A) shift more of their wealth to the risky asset.
  B) shift more of their wealth to the risk-free asset.
  C) keep the same asset allocation.
  D) We do not have enough information to answer this question.

Question 2

Good A is a Giffen good. If the price of good A were to suddenly double, the income effect would cause the purchases of good A to increase by
 
  A) more than double.
  B) exactly double.
  C) less than double.
  D) Any of the above are possible.
  E) none of the above



jlaineee

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Answer to Question 1

A

Answer to Question 2

D



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