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
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