The potential for moral hazard exists in most corporations because the managers or officers ofthe corporation are often not the owners; this is called the principal-agent problem. The managers may not always act in the best interest of the owners. For example, the owners may prefer a higher return that calls for a greater risk to be taken. The managers (preferring to keeptheir jobs) may shun the additional risk, preferring the job security over a higher return for theowners. The threat that the company can be and likely may be purchased by others if it is under performing can actually motivate the managers to seek a higher return.
Indicate whether the statement is true or false.
a. True
b. False
Answer: True.
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From any point below the current LM curve, money market equilibrium can be restored by some combination of a ________ income and a ________ interest rate that ________ the demand for money
A) higher, higher, increases B) higher, lower, increases C) higher, lower, reduces D) lower, higher, increases E) lower, higher, reduces
The life-cycle hypothesis was developed in the 1950s, primarily by the economist
A) Franco Modigliani. B) Robert Lucas. C) Walter Rostow. D) Nils Hellstrom.
In a two-person economy, Adam and Brandon both produce corn and cars. Adam's marginal cost of producing a car is 50 tons of corn, while Brandon's marginal cost is 70 tons of corn. In this economy, Brandon should produce cars and Adam should produce corn
Indicate whether the statement is true or false
If the FOMC orders a purchase of government securities from member banks, where does the FOMC get the money to pay for the securities?
A. It creates money to pay for the securities by adding the purchase amount to the banks’ reserves. B. It pays for the securities with new Federal Reserve notes. C. It borrows the necessary funds from the Treasury. D. It auctions off part of the securities it already owns.