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Chapter 14: Q5. (page 302)

Suppose that Lady Gaga goes to Las Vegas to play poker, and at the last minute, her record company says it will reimburse her for 50 percent of any gambling losses that she incurs. Will Lady Gaga probably wager more or less as a result of the reimbursement offer? Explain.

Short Answer

Expert verified

Lady Gaga will wager more as a result of the reimbursement offer from the record company.

Step by step solution

01

Step 1. Lady Gaga will gamble more

When the record company secures the gambling losses of Lady Gaga by 50 percent, she will become more comfortable with playing as she will not feel the high pressure of the unpredicted losses, which she would in case she had to bear those all by herself.

Lady Gaga will be ignorant and probably wager more, assuming that she doesn’t have to share the losses all by herself in case they occur.

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Most popular questions from this chapter

Suppose that a small country currently has \(4 million of currency in circulation, \)6 million of checkable deposits, \(200 million of savings deposits, \)40 million of small-denominated time deposits, and \(30 million of money market mutual fund deposits. From these numbers we see that this small country’s M1 money supply is _______ , while its M2 money supply is  _______.

a. \)10 million; \(280 million

b. \)10 million; \(270 million

c. \)210 million; \(280 million

d. \)250 million; $270 million

Why are federal prosecutors reluctant to bring major charges against large financial firms? What was the main regulatory action of the Glass-Steagall law? Why might having many smaller financial firms be more stable than having fewer larger firms? What argument can be made for the possibility that larger financial firms might be more stable than smaller financial firms?

An important reason why members of the Federal Reserve’s Board of Governors are each given extremely long, 14-year terms is to:

a. insulate members from political pressures that could result in inflation.

b. help older members avoid job searches before retiring.

c. attract younger people with lots of time left in their careers.

d. avoid the trouble of constantly having to deal with new members

Assume that the following asset values (in millions of dollars) exist in Ironmania: Federal Reserve Notes in circulation = \(700; Money market mutual funds (MMMFs) held by individuals = \)400; Corporate bonds = \(300; Iron ore deposits = \)50; Currency in commercial banks = \(100; Savings deposits, including money market deposit accounts (MMDAs) = \)140; Checkable deposits = \(1,500; Small-denominated (less than \)100,000) time deposits = \(100; Coins in circulation = \)40.

a. What is M1 in Ironmania?

b. What is M2 in Ironmania?

The three functions of money are:

a. liquidity, store of value, and gifting.

b. medium of exchange, unit of account, and liquidity.

c. liquidity, unit of account, and gifting.

d. medium of exchange, unit of account, and store of value.
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