1. The table below shows hypothetical outputs for 3 countries and 2 states of nature related...

 

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1. The table below shows hypothetical outputs for 3 countries and 2 states of nature related to world climate conditions which may happen with 60 and 40 percent of probability. respectively. Moreover, the United States is considering 2 portfolios: Portfolio A: 50% USA, 20% UK, 30% Japan; Portfolio B: 50% USA, 50% Japan. Suppose you are in charge of smoothing the USA's consumption and have to determine the validity of the next statements regarding expected values and consumption smoothing. Probabilities Cold weather 60% Warm Weather 40% II. III. IV. USA (output) 40 80 30 95 a) I and II b) I and III c) I, II and III d) I, II and IV e) I, III and IV UK (output) Japan (output) 70 35 If the American government does not invest abroad, the expected consumption is 56. From the table, we can say that the outputs of the USA and UK are positively correlated. The expected value of Portfolio A is higher than the expected value of Portfolio B. In terms of consumption smoothing, it would be better to invest in Portfolio B than in Portfolio A. 1 1. The table below shows hypothetical outputs for 3 countries and 2 states of nature related to world climate conditions which may happen with 60 and 40 percent of probability. respectively. Moreover, the United States is considering 2 portfolios: Portfolio A: 50% USA, 20% UK, 30% Japan; Portfolio B: 50% USA, 50% Japan. Suppose you are in charge of smoothing the USA's consumption and have to determine the validity of the next statements regarding expected values and consumption smoothing. Probabilities Cold weather 60% Warm Weather 40% II. III. IV. USA (output) 40 80 30 95 a) I and II b) I and III c) I, II and III d) I, II and IV e) I, III and IV UK (output) Japan (output) 70 35 If the American government does not invest abroad, the expected consumption is 56. From the table, we can say that the outputs of the USA and UK are positively correlated. The expected value of Portfolio A is higher than the expected value of Portfolio B. In terms of consumption smoothing, it would be better to invest in Portfolio B than in Portfolio A. 1

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Explanation 1 Expected production for Us if it does not invest abroad 40 if there i... View the full answer