How is the separation of ownership from control related to the ...

[Mimi]

How is the separation of ownership from control related to the principal-agent problem?
 
  What will be an ideal response?

Question 2

Contractionary monetary policy refers to the Fed's decreasing the money supply and decreasing interest rates to decrease real GDP.
 
  Indicate whether the statement is true or false

[jrpg123456]

Answer to Question 1

The principal-agent problem results when an agent pursues his own interests rather than the interests of the principal who hired him. This can be a problem for a corporation because the managers of a firm (the agents) may choose to pursue policies that benefit themselves rather than the firm's stockholders (the principals). Stockholders would benefit from a policy that yields higher profits but managers may consider the policy too risky and prefer to take fewer risks even at the expense of possible future profits. Because most shareholders are divorced from the daily operation of the firm they may be unaware of the choices managers make.

Answer to Question 2

FALSE

[Mimi]

Correct answers!

[jrpg123456]

Great! Please up vote