A Moral Hazard Problem Arises When

question 24

Multiple Choice

A moral hazard problem arises when:

• A) An agent takes unobserved actions on his own behalf.
• B) A principal hires another individual to perform some service.
• C) Firms borrow money from bondholders.
• D) Stockholders have to incur costs to make managers act to maximize stock price.
• E) Managers are granted performance shares.

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Definitions:

Inflation Rate

The speed at which the overall price level for goods and services increases, leading to a decrease in buying power.

Unemployment Rate

The percentage of the labor force that is jobless and actively seeking employment, a key economic indicator of a country's economic health.

Bowers V. Hardwick

A controversial 1986 Supreme Court decision upholding a Georgia sodomy law, later overturned by Lawrence v. Texas in 2003.

Federal Power

The authority held by the national government of a federal state, as distinguished from the powers held by state or provincial governments.