One Reason That the Principal-Agent Problem Is a General One

question 33

Multiple Choice

One reason that the principal-agent problem is a general one in equity contracts is that

• A)most uses of corporate funds are highly visible.
• B)many uses of corporate funds are hidden from view.
• C)since top management usually also owns the bulk of the firm's stock, it has little incentive to respond to the wishes of the remaining shareholders.
• D)the Securities and Exchange Commission does a poor job of detecting fraud by top management.

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Definitions:

Money Supply

Money Supply refers to the total amount of monetary assets available in an economy at any specific time, including cash, coins, and balances held in checking and savings accounts.

M Rises

This term is unclear without context, but could refer to an increase in a specific variable "M" in mathematical, economic, or other models.

Percentage Rise

A measure of how much a quantity increases over a period, expressed as a percentage of the initial value.

Equation of Exchange

An economic formula representing the relationship between the money supply, its velocity, the price level, and the number of transactions in an economy: MV = PQ.