How does the principal-agent problem increase the possibility of moral hazard?
What will be an ideal response?
The shareholders, as owners of the firm, are the principals, while the top managers, who are hired to carry out the owner's wishes, are the agents. Although the shareholders are interested in the managers running the firm so as to maximize the value of the shareholders' investment, the managers may have other objectives. Some top managers are accused of being "empire builders" who are interested in making the firm as large as possible through growth and the acquisition of other firms, even if the firm would be more profitable if it were smaller. Other top managers seem more concerned with using corporate jets and holding meetings in expensive vacation spots than with the firm's profits. Managers even have an incentive to underreport profits so that they can reduce the dividends they owe to shareholders and retain the use of the funds.
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In the figure above, the second richest 20 percent of households receive ________ of total income
A) 55 percent B) 35 percent C) 25 percent D) 45 percent
To what extent are homemaking and child-rearing accounted for in the government's GDP accounts?
A) Not at all B) Only to the extent that they are provided for pay C) Only to the extent that taxes are paid on them D) All homemaking and child-rearing are accounted for
The European Central Bank (ECB) pursues a hybrid monetary policy strategy that has elements in common with the -targeting strategy previously used by the Bundesbank but also includes some elements of targeting
A) monetary; inflation B) inflation; monetary C) monetary; exchange rate D) monetary; nominal GDP
Substitution of one commodity for another depends on all of the following factors, EXCEPT:
a. prices of the goods available to the consumers. b. tastes and preferences of the buyers. c. the information buyers possess. d. market protocols.