University of Central Florida (UCF) ECO3223 Money and Banking Practice Exam 1

The statement is true because variance and standard deviation are key statistical measures used to assess risk in the context of uncertainty. Variance quantifies the dispersion of a set of values in relation to the expected value (mean), representing how much the values deviate from the average. This gives an indication of the risk associated with potential outcomes; higher variance means greater risk since the outcomes are spread out over a wider range.

Standard deviation, which is the square root of variance, provides a more intuitive measure of risk since it is expressed in the same units as the original data. Both of these measures allow for a quantitative assessment of risk, making them vital tools in finance, economics, and decision-making under uncertainty. By applying these concepts, one can better evaluate the risk-return profile of an investment or decision when faced with uncertainty.