Explain how each of the following market forces helps reduce incentive conflicts between shareholders and management: a) the market for corporate control, b) the managerial labor market, and c) the product market.
What will be an ideal response?
The market for corporate control assures that, with sufficient financial disclosure, competing management teams could make hostile takeover offers for firms with poorly performing management teams. The U.S. has a relatively active takeover market. The managerial labor market rewards executives with a good track record by providing a greater number of offers (for other CEO positions and board positions) or greater compensation or both. The product market limits managerial agency problems through the price system. Companies with higher costs that have arisen through poor management will be more likely to fail because their profits will be reduced at the prevailing price.
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In the above figure, what is the profit at the profit-maximizing output level?
A) $70 B) $2 C) $20 D) $10
Most economists reject the theory of rational expectations because
a. expectations adjust very quickly. b. workers receive wage increases in advance of inflation. c. the short-run aggregate supply curve is vertical. d. labor contracts tend to embody past inflation rates.
The M2 money supply
A) includes M1. B) is commonly referred to as the broad definition of the money supply. C) includes savings deposits. D) is larger than M1. E) all of the above
Any transaction that causes foreign exchange to enter a country is a
A. debit item in that country's balance of payments. B. debit item in that country's balance of trade. C. credit item in that country's balance of payments. D. credit item in that country's balance of trade.