We have discussed the principal-agent problem as a form of moral hazard. Discuss the unique problems a bank manager faces in terms of trying to please the owners of the bank and at the same time trying to appease regulators.
What will be an ideal response?
The principal-agent problem arises from the fact that often the manager of a company is not acting in the best interest of the owners. In the case of a bank, the owners would certainly want a high profit with a reasonable amount of risk. On the other hand the regulators of a bank prefer the bank minimize risk. For example, we saw that increasing the leverage (higher debt-to-equity ratio) can increase the return on equity, something the owners of the bank would prefer. The higher leverage on the other hand also increases the risk, something the regulators will frown upon. So the bank manager is in the unenviable position of having to balance the desires of the owners, the regulators, and to a large degree the depositors. This is not an easy task.
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A) the greatest good for all. B) the study of scarcity and choice. C) all other things remaining constant or equal. D) value-free and testable.
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A) if there is a sustained increase in the price level. B) only if there is a sustained increase in the price of every good and service. C) only if there is a sustained increase in the price of every good and service by the same dollar amount. D) only if there is a sustained increase in the price of every good and service by the same percentage.
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A. complementary B. substitutable C. normal D. both complementary and substitutable